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Coins vs tokens: what’s the difference?
The terms "coin" and "token" are often used interchangeably, but there are a few key differences to be aware of.
If you’re new to the world of cryptocurrency, you’ll no doubt have found that there’s a whole lot of jargon and technical terminology to try and wrap your head around. Two terms that can be the source of much confusion are “coin” and “token.” Both of these words can be used to describe units of blockchain value and there are plenty of similarities between the two.
However, there are some important differences as well, which we’ll look at in this article.
This is not an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade or use any services.
What is a crypto coin?
In general terms, a cryptocurrency coin is just that – an encrypted digital currency meant to be used as a form of payment. A coin is a unit of value that operates on its own blockchain, independently of any other platform. It can be used to store value and pay for services, in much the same way that you would use physical money.
Bitcoin (BTC) is easily the best-known cryptocurrency coin around the world, but it’s far from the only coin available. In fact, there are thousands of crypto coins in existence. You may see many of these other coins referred to as altcoins, an abbreviation of alternative coins, simply because they offer an alternative to Bitcoin.
Most altcoins are a fork of Bitcoin and were developed using Bitcoin’s open-source protocol. Examples include Litecoin (LTC) and Dogecoin (DOGE).
However, there’s also a long list of other altcoins that haven’t been derived from the Bitcoin protocol and have instead created their own blockchain and protocol. Some well-known examples include Ethereum (ETH), Ripple (XRP) and Cardano (ADA).
What is a crypto token?
Tokens are used to represent digital assets that are fungible and tradeable, including everything from commodities to voting rights. However, rather than operating on their own blockchain, tokens are hosted by another platform, such as Ethereum.
While tokens are also a medium of exchange, they offer functionality above and beyond that of coins. Tokens give their holders the ability to take part in some kind of activity – for example, if you want to bet on the outcome of future events through decentralized prediction market Augur, you’ll need to use REP, the Augur platform’s native cryptocurrency token. Tokens can also offer value to buyers, for example through buybacks.
Tokens are usually created and distributed to the general public through Initial Coin Offerings (ICOs), which are a form of crowdfunding. Some of the best-known crypto tokens include EOS (EOS), Tron (TRX) and OMG Network (OMG), with Ethereum being the most popular platform for token development.
However, there are also plenty of other platforms which tokens can be built upon, including Omni, NEO, Waves and Qtum.
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Disclaimer: Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.
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