- A coin is a cryptocurrency that has its native blockchain where it runs on
- Unlike crypto coins, tokens are considered more sophisticated and advanced. It does not necessarily rely on its blockchain network; instead, it can function on multiple networks like Ethereum.
- Ultimately, crypto tokens and crypto coins have similar overall similarities, and their functionality complements each other
One of the main hurdles new crypto traders face within the crypto ecosystem is learning their way around the mechanisms of the blockchain network. Figuring out what cryptocurrency t affiliate yourself with is a hectic and cumbersome activity. Most individuals mainly go after the top 5 cryptocurrencies, and at times, they are discouraged by the exact prices of such crypto coins.
Understanding the terminologies of the art is also another cumbersome activity. One of the most fundamental aspects has created various misconceptions about cryptocurrency. To date, many crypto traders, myself included, often thought crypto coins and tokens were synonyms. It turns out we were all wrong, and here’s why.
Where the confusion between crypto coins and crypto tokens began
Individuals always hear one of the most basic terminologies when dealing with the crypto ecosystem: “coins” and “tokens”. Many use them interchangeably, causing crypto traders to assume they are the same.
Due to this fact, there are various repercussions when it comes to this. Most traders tend to buy tokens thinking that their coins have value but are subtle differences between them.
What is a crypto coin
A coin is a cryptocurrency that has its native blockchain where it runs on. Many blockchain networks are duplicates or improvements to Bitcoin’s original blockchain network. It would be best if you first made a blockchain network to create a new coin within the crypto ecosystem. This is mainly because a crypto coin is the product of a blockchain network.A prime example of a crypto coin is Bitcoin or BTC. Its blockchain network powers it and provides the necessary environment for it to run. BTC being the original crypto coin, every other coin afterwards merely duplicates the mechanics behind BTC. They are generally known as Alternative coins or alt-coins.
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Here are the various common feature that all coins have;
- Operate in a native blockchain – All crypto coins run on their native blockchain. This is because one cannot exist without the other. This allows it to keep track of the data, store value, validate transactions and keep the overall crypto ecosystem secure. When a party pays another with Ethereum, the transactions’ details go to the Ethereum blockchain. If the receiving party were to send back BTC, the receipts would go back to the Bitcoin blockchain network. The blockchain network can specify any additional functionalities.
- Digital currencies – crypto coins are the digital money used within the crypto ecosystem. These coins store value depending on the crypto coin’s demand and supply. The main reason behind Bitcoins’ consistent top position is that it has a fixed collection of coins; 21 million. This means that getting your hands on one Bitcoin will be worth more than having 10 Ether.
- Products of crypto mining – generally, there are two ways of earning crypto coins; the initial process was crypto mining before crypto trading. Crypto traders, or miners, would employ the Proof of Work system to use their resources in exchange for acquiring crypto coins. PoW is slowly becoming a legacy mechanism, especially since the Proof-of-Stake mechanism went mainstream. It offers a lighter energy consumption and is easier to do
Existing types of crypto coins:
What is a crypto Token
Unlike crypto coins, tokens are considered more sophisticated and advanced. It does not necessarily rely on its blockchain network; instead, it can function on multiple blockchain networks like Ethereum.
Tokens rely on smart contracts to validate transactions and data instead of blockchain networks. According to Rajagopal Menon, vice president at WazirX, creating tokens is simpler than crypto coins. “When you make a token, you don’t have to create a Blockchain and write the entire code and worry about how the blockchain network would validate transactions; instead, you create a token that runs on someone else’s blockchain.
This means you don’t have to keep improving the entire system, updating how it works, and patching vulnerabilities – your team can solely focus on providing a great project,” he added.
Tokens are merely codes that facilitate trades or payments between crypto traders. In light of these two facts, there are more crypto tokens than crypto coins.
Within the crypto ecosystem, when a crypto trader spends a token, it physically moves from one blockchain network to another. This mechanism is similar to how NFTs operate when changing ownership. They also have additional functionalities giving them different purposes, such as raising funds or providing access to particular services. Wrapped tokens enable other crypto coins to exist in a separate blockchain network. In addition, crypto startups use them to raise capital through an initial coin offering(ICO) where investors buy crypto coins.
Types of crypto tokens:
- USD Coin
- Binance USD
- Wrapped Bitcoin
- LEO Token
- Shiba Inu
- Lido Staked Ether
- FTX Token
Wrapping Up; Crypto coins vs Tokens
The critical similarity between crypto coins and crypto tokens is that they both run on blockchain networks and are transferable between peers. Unfortunately, that’s where the similarity ends. Crypto coins are the most basic form of tokens since they are inflexible and can only work in a single blockchain. To curb this issue, crypto coins undergo tokenization and transform into tokens for utility or governance.
The concept behind tokens was interoperability. Unfortunately, its downside is its unable t use the consensus mechanism of its parent blockchain for token generation. Instead, project teams define token issuance and are modified based on the project’s DAO. Ultimately, tokens and crypto coins have similarities, and their functionality complements each other.