Cryptocurrency is more popular than ever before — people are beginning to realize the value of cutting out centralized banks. If you’re interested in partaking in trading cryptocurrency, you should first learn about the differences between crypto coins and crypto tokens. While they are both terms used to describe units of blockchain value, they have distinct differences that you should know about before embarking on your journey with cryptocurrency. Here’s everything you need to know about their differences:
Crypto coins are monetary means (measured in units) of an independent blockchain network. Some of the most popular blockchain networks include Bitcoin, Dogecoin, and Litecoin. Every blockchain network has distinct rules and performance levels. The primary purpose of a coin is to utilize it to transfer monetary value. Essentially, digital coins and real-world coins (like quarters) can be viewed as the same thing. Digital coins can be used as a form of payment/currency exchange when partaking in transactions.
Crypto tokens refer to cryptocurrencies that don’t have their own blockchain. Essentially, tokens are the product of a cryptocurrency being built from a separate blockchain network. Etherum is a popular example of a crypto token — people can create Etherum tokens on top of the existing Etherum blockchain. Tokens have value, but that value isn’t considered to be as straightforward as coins.
While the purpose of coins is pretty self-explanatory, the purpose of digital tokens is a bit more complex. Tokens store value, like coins, but the value is stored in ways other than cold hard cash. People value tokens because they store different kinds of value, like holding power in community votes about important business decisions that need to be made within a crypto platform.
describes security tokens as digital, liquid contracts
for fractions of any asset that already has value,
like a house, a car, a painting, or equity in a
company. Investors are attracted to these tokens
because they promise to preserve their ownership stake
on the blockchain ledger. Investopedia goes so far as
to say that 2021 is the rise of security tokens
because security tokens are a natural bridge between
the traditional finance sector and blockchain and
benefit both equally.
Unlike security tokens, utility tokens are not used as investments. Utility tokens a wide range of value — and could be exchanged for a future product or service. Utility tokens are only valued for their inherent functions and properties. Currently, most digital tokens are utility tokens based on the Ethereum blockchain.
People tend to interchangeably use the terms as they
are quite similar in nature, but the easiest way to
remember the primary difference is that coins are
equivalent to cash — while tokens add value in other
Digital coins only have a monetary value, so they’re used for transactions. Digital tokens have many different uses that provide value to the owner in some way. Whether it be that the token gives value to its owner because they get power to have a voice within a specific network or that a token is a liquid contract for a fraction of a car — tokens hold more complex forms of value.
Perhaps one of the most significant differentiators is that digital coins have their own blockchain network, but tokens are built upon an existing blockchain. It’s important to note that digital coins are mainly distributed through mining, while tokens became popular through ICOs.
Whether you find yourself looking at crypto coins or tokens, engaging in the booming market of cryptocurrency is financially rewarding. Happy trading!