If you deal a bit with cryptocurrencies, you will quickly come across the words “coin” and “token”. For beginners, both terms seem to mean the same thing. But there are differences.
Coin, token and altcoin: These are the differences
The main difference between a coin and a token is: A coin is always based on its own blockchain, while a token is built on an existing blockchain. Bitcoin was the first digital coin ever and has its own blockchain. Over the years, other cryptocurrencies have been built on this blockchain, which are therefore called tokens. However, most tokens are now based on the Ethereum blockchain.
The difference: Coin vs Token
The terms coin and tokens are often incorrectly used as a synonym in crypto, but there is a significant difference: coins only count as a means of payment (nucypher price), whereby tokens find a much broader application.
Coin
A coin is a currency type that has its own blockchain (platform) and therefore works independently of other platforms. Altcoins are digital coins (coin) that differ from Bitcoin. So far, the majority of coins are based on the same open source platform as Bitcoin. Changing basic codes creates a completely new coin. These coins include e.g. IOTA, Litecoin, Dogecoin.
Of course, there are also coins that do not come from the idea of the Bitcoin open source platform. They have created their own blockchain and open source protocol. These include e.g. Ethereum, Ripple, NEO.
Token
Unlike coins, tokens cannot exist without a previous cryptocurrency. They are bound to an existing blockchain, e.g. the Ethereum blockchain, and cannot exist without it. A big advantage of this is that you do not need your own nodes and miners, but use those from the cryptocurrency. Of the egg, tokens can be generated with relatively little effort compared to coins.
A token can fulfill one or more functions. These include:
- A currency that is used as a means of payment between participants.
- Payment for the use of a system
- A digital law (contract)
- A kind of dividend of a coin (NEO → GAS)
- A share of a specific start-up
Tokens are sold in ICOs (Initial Coin Offerings). There, a certain percentage of all tokens (only one token) are offered for sale. This turnover is usually used as starting capital for the project and the rest of the tokens are retained for development or testing purposes. According to the ICO, a successful future of the coin is usually decided by the release on a well-known exchange.
Differences in function
But coins and tokens also differ in their function. Coins can be called digital money. They serve as a store of value and can be used as a means of payment for goods or services. Tokens, on the other hand, are usually integrated into an ecosystem in which they can take on all possible functions. They serve, for example, as a means of payment, for instance in a define exchange, represent a real asset or function as an access authorization for goods or services. For example, ownership rights for real estate could be tokenized, i.e. digitally mapped on a blockchain. The application possibilities of tokens are therefore much greater than those of coins. However, they can also be made more difficult to make money, as they usually cannot be used as a means of payment in the real world.
Difference to altcoins
What the term altcoin is all about, on the other hand, is quickly explained. All coins except Bitcoin are altcoins, as BTC was the first cryptocurrency. It has existed since 2009.
Note: As a rule of thumb to distinguish between coins and tokens, you can remember that coins serve as liquid means of payment, while all functions that go beyond that indicate a token.