Even with the recent growth in the cryptocurrency market, it is still relatively new, with many new terms used to describe different digital assets. Tokens and coins are among the most used terms, and many people use them interchangeably.
However, coins and tokens are different, and some investors don’t understand whether they buy them. According to cryptocurrency experts, all coins are tokens, but not all tokens are coins.
There are some things that tokens allow holders to do that they cannot do with coins. Also, some platforms accept coins and tokens, while others do not entertain tokens.
If you are a beginner in the cryptocurrency world, you must know the difference between these two to help in your trading or investing venture.
What Are Crypto Coins?
Crypto coins are native to a blockchain, meaning that the blockchain keeps track of every transaction done using the crypto coins.
Ether, for example, is the native coin for the Ethereum blockchain, and every transaction that involves the Ether is done on the Ethereum blockchain.
The transactions involving crypto coins are also recorded and encrypted on the blockchain, and only network members can access that information.
Every blockchain has a native crypto coin, making coins generally fewer. Depending on the consensus algorithm, there are several ways you can mine a coin, and you can use it to store value or trade currency.
One of the ways you can mine crypto coins is on the Proof of Work System, which is the traditional mining method.
Another way is proof of stake, which is the newer method. It is easier than the Proof of Works System and uses less energy. This method processes transactions and creates new blocks in the blockchain.
Crypto coins were developed mainly to be a money replicas. Lately, many countries have started accepting Bitcoin as a currency, with El Salvador even making it official. Many businesses are also accepting Bitcoin as payment.
What Are Crypto Tokens?
Tokens do not have their blockchain and usually operate on the crypto coins’ blockchain.
For example, tokens like Loppring and BAT operate on the Ethereum blockchain. While crypto coins transactions are handled and recorded on blockchains, token transactions rely on smart contracts for trade.
Numerous codes enable payment or trades between two users, and every blockchain has its smart contracts. Ethereum, for example, uses ERC-20, while NEO uses Nep-5. One blockchain can host hundreds of thousands of tokens, making them more than coins.
You can hold tokens for value, trade them or stake them to earn interest. However, when you spend a token, they move from one place to another, unlike coins that remain in the same places while your bank account changes.
NFTs are non-tangible tokens that are the perfect example of change of ownership and physical movements.
While coins represent monetary value or what a person can own, tokens represent a person’s assets or deeds.
You can buy tokens using coins. There are, however, restrictions to where and how you can spend your tokens, and they do not have as much liquidity as coins do.
Tokens are easy to create, and networks like Ethereum have templates that you can use to brand your token and begin trading.
Tokens existed before cryptocurrency, and we have all used tokens at least once in our lives, for example, shopping vouchers.
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