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Know The Difference Between A Cryptocurrency Token And A Coin!

By Michael Rasya

Cryptocurrency_ Are you considering investing in cryptocurrencies and finding out more about them? If so, were you familiar with tokens? To put it plainly, among the digital assets in crypto assets outside coins, tokens are one.

Know The Difference Between A Cryptocurrency Token And A Coin


However, a lot of people continue to believe that tokens and coins can be used interchangeably and as "synonyms." These are two distinct things, in actuality. So what do tokens actually mean? What distinguishes tokens and coins from each other? See the clarification below.


Meaning of token

Digital assets known as tokens are created on top of a different blockchain. Tokens are not a form of currency, despite the fact that they have a market value. In other words, tokens only serve as a representation of a limited range of assets and/or services.


Tokens often serve as a representation of ownership and are used in decentralized applications (dApps). As a result, developers have control over the number of tokens generated and their destination.


Because it is housed by a different entity, namely a different blockchain, the creators are required to pay a specified quantity of cryptocurrency assets. For instance, in order for a user to be willing to validate the network, the developer must pay a particular amount of ETH in order to generate a token on the Ethereum blockchain.


Additionally, token creators must adhere to the requirements of the blockchain technology being used. For example, the Ethereum blockchain has ERC-20 and ERC-271 for NFT (Non-Fungible) tokens.


The market is currently flooded with tokens that have gained popularity among investors, including DAI, UMA, USDT (Tether), USDC (USD Coin), TRX (TRON), and BAT (Basic Attention Token).



What separates tokens and coins

Currencies run on their own blockchain, are used for payment and investment transactions, and are the most fundamental way that tokens and coins vary from one another. Unlike tokens that are solely used as a means of exchange so that the project can function or have access to particular features made by the author.


In addition, the creation of coins comes from the mining process or mining through the Proof of Work or Proof of Stake mechanism. Whereas token generation is done in apps (decentralized applications) hosted on other blockchains.


Crypto Token Principle

After knowing the difference between tokens and coins from their definition to their uses, it turns out that tokens also have several principles of their own. Generally, the token principle is as follows:

  • Programmable, meaning that tokens run on software protocols from a number of smart contracts on the main blockchain.
  • Permissionless, means that tokens can be used by anyone without the need for permission from a certain party.
  • Transparency indicates that the use of tokens can be recorded and monitored by anyone.
  • Trustless, i.e., in token circulation, no authority can control it.


Token Type

In addition to having several principles, tokens are also divided into several types. More specifically, the types of tokens are as follows:


1. Utility Token

The first type of token is a utility token, which aims to be able to gain certain access from a project, for example offering a product or a service. Tokens of this type are often expected to increase in value due to limited supply.


2. Equity Token

As the name suggests, equity tokens are a representation or representation of equity or share of a company.


3. Payment Tokens

Almost the same as the function of a coin as a payment, but in its use, this token is more specific as the only use of payment for an item or service.


4. Security Token

The next type of token is a security token issued by an initial token sale (ITS) or ICO. These tokens are used by people to invest in order to make a profit.


5. NFT (Non-fungible Token)

Furthermore, there is a token that is being discussed, namely the Non-fungible token or NFT, which is a token representation of collectible items or unique things, such as antiques, joint works, or card collections.


6. Asset Token

An asset token is a token backed by real assets, such as property or gold.


7. Stablecoins

The last type of token is a stablecoin, which is a token that is used as a representative of fiat currency, such as the Euro, US Dollar, and others.


Well, that's the information about tokens and the difference between them and coins. In essence, tokens are one of the digital assets in the world of cryptocurrencies that are on another blockchain for a particular project.