So you know what a Crypto Coin is, and maybe even what a blockchain is.
Have you ever wondered why some of these assets are referred to as coins while others are referred to as tokens? On the surface, they may appear to be the same, yet as the distinction says, they are not. Lets talk about Coin vs Token.
Let’s start with a definition of a crypto coin.
Bitcoin established the standard for what it means to be a coin when it first appeared. Cryptocurrencies are distinguished from tokens, which are akin to real-world money, by several distinct characteristics.
Crypto Coin can be characterized by the following:
First and foremost, it is based on a blockchain. A blockchain records all transactions involving its native cryptocurrency.
The receipt for an Ethereum payment is stored on the Ethereum blockchain. Same goes for Bitcoin. The transactions that are processed are all added to the Bitcoin blockchain. Each transaction is encrypted and can be viewed by any member of the network.
A coin functions as money
Bitcoin was designed with the sole intention of displacing existing currency. Other coins, including ETH, NEO, and Litecoin, were motivated by the dual appeal of transparency and anonymity.
Many large firms, such as Amazon, Microsoft, and Tesla, now accept cryptocurrencies as payment for goods and services. Along with the US dollar, Bitcoin has officially become an official currency in El Salvador.
Aside from that, coins can be mined.
There are two common ways to earn cryptocurrencies. One method is to mine using the Proof of Work scheme. This approach is used by bitcoin hunters to increase their earnings. The issue is that there aren’t many Bitcoins left to mine, therefore the process is becoming more difficult by the day.
Proof of Stake, a more current technique of earning Crypto Coin, is the second option. It uses less energy and is simpler to implement. Cardano is one of the most popular coins to use this technique.
Let’s discuss how it works now
A cryptocurrency is a digital, encrypted, and decentralized medium of exchange. Unlike the United States, there is no central body that administers and maintains the value of a cryptocurrency, unlike the US dollar or the Euro. Instead, these responsibilities are divided throughout the internet among the users of a cryptocurrency.
Although most individuals invest in cryptocurrencies as they would in other assets such as stocks or precious metals, you may use crypto to buy conventional goods and services. While cryptocurrency is a fresh and interesting asset class, investing in it can be risky because you must conduct extensive research to properly comprehend how each system operates.
Bitcoin was the first cryptocurrency, with Satoshi Nakamoto describing the idea as “an electronic payment system based on cryptographic proof instead of faith” in a 2008 paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System.” This cryptographic proof takes the form of verified and recorded transactions on a blockchain.
Let’s talk about what a token is now
The phrase “crypto token” refers to a unique virtual currency token or the method by which cryptocurrencies are valued. These tokens are fungible and tradeable assets or utilities with their blockchains.
Crypto tokens are frequently used to raise funds for crowd sales, but they can also be used to replace other items. The traditional initial coin offering or the ICO method, which comprises a crowdsourcing exercise to support project development, is used to produce, distribute, sell, and circulate these currencies.
How do they work?
Well, Crypto coins, as previously stated, are cryptocurrency tokens. These tokens are denominated in cryptocurrencies or virtual currencies, and they have their blockchains. Blockchains are specialized databases that store data in blocks that are subsequently connected in a chain. This means that crypto tokens, also known as crypto-assets, represent a specific monetary unit.
This is how it works. Elliptical curve encryption, public-private key pairs, and hashing functions are examples of cryptography algorithms and cryptographic approaches that protect these entries. Cryptocurrencies, on the other hand, are online payment systems that use virtual tokens to make safe payments. These tokens are represented by the system’s internal ledger entries.
These digital assets are frequently used as transaction units on blockchains built using common templates, such as the Ethereum network, which lets users generate tokens. Such blockchains are based on the concept of smart contracts, or decentralized applications, in which programmable, self-executing code is used to handle and manage the blockchain’s numerous transactions.
For example, on a blockchain used to maintain such details for a retail chain, you could have a crypto token that represents a particular number of client loyalty points. Another crypto token may be issued that entitles the bearer to watch 10 hours of streaming content on a video-sharing blockchain. Another crypto token might potentially represent additional cryptocurrencies, such as 15 bitcoins on a specific blockchain. These Crypto Coins are tradable and transferable among the blockchain’s many members.
Tokens are produced through an initial coin offering, which is the cryptocurrency equivalent of an IPO. Cryptocurrency companies that want to raise funds produce Crypto Coins. These tokens can be purchased by investors that are interested in the company.
Crypto tokens can be used for a variety of purposes by investors. They can keep them as a representation of a share in the cryptocurrency company or for economic purposes, like trading or making purchases of goods and services. Bluzelle, a decentralized storage company, for example, allows investors to stake their native tokens to help secure its network while also earning transaction fees and prizes.
Coin vs Token
Crypto Coins must stay in their lane while Tokens represent assets payable in coins.
Cryptocurrency coins were designed to be used as currency. Coins can be used to pay for products and services, can be saved for later use, and can be divided into fractions of the whole, such as Bitcoin, Ether, Dogecoin, Litecoin, and Monero are some of the most widely used coins.
Crypto Coins typically develop their infrastructure, allowing them to choose how they are created, how they are protected from assaults, how their supply is controlled, how their transactions are processed or recorded, and who they reward.
A coin, to put it simply, is a digital asset that is “native” to its blockchain. Bitcoin, for example, has its blockchain, whereas Ether has its own Ethereum blockchain, and so on. One user can transmit their coins to another within the network — Bitcoin to Bitcoin, Litecoin to Litecoin — but direct transfers between the two coin networks are not possible.
This means that a person cannot sell one Bitcoin and purchase 200 Litecoins directly from the Bitcoin network’s blockchain network.
That’s where trades come into play. On each coin’s network, they connect buyers and sellers. As a result, when one user trades Bitcoin for Litecoin, the transactions are recorded on the respective blockchains. The exchange is merely a middleman who keeps track of accounts. This is an important characteristic of coins since it keeps their records ‘tied’ to their original blockchain infrastructure.
Crypto tokens, unlike Crypto Coins, are a representation of an asset rather than a suggested medium of exchange. These ‘tokens’ can be kept for their face value, sold, or staked for interest. Tether, Uniswap, Chainlink, and Polygon are some of the most widely used tokens.
Tokens are typically developed on top of an existing blockchain and are utilized with decentralized applications. While tokens benefit from an existing blockchain, they do so without the need for their infrastructure.
Polygon, an Indian cryptocurrency platform, seeks to make Ethereum transactions faster and more affordable. Polygon isn’t the only one who makes use of it. By 2021, a substantial number of DApps will be running on the Ethereum blockchain, which allows for smart contracts,’ and their tokens will be using the Ether coin internally.
Some tokens, such as Tether — a stablecoin backed by commercial paper, which is a company’s guarantee to repay short-term debt — employ multiple blockchains to increase speed and lower user costs. As a result, unlike currencies, tokens have the option of not being ‘tied’ to a particular blockchain, giving them more freedom and making them easier to trade.
DApps that employ tokens, for example, are believed to be easier to design than DApps that use currencies. Decentralized Finance and non-fungible tokens are just two of the exciting applications that have resulted as a result of this.
Overall, the distinction between a token and a coin isn’t significant, but it can cause a lot of confusion if it’s neglected regularly. Paying attention to what you’re buying is one simple way to figure out which one you should use. If it’s a product, you’ll almost always require coins. If it’s a service, utility tokens are often used.