What are coins and tokens in crypto?

The terms ‘Coins and tokens’ are usually used interchangeably, but in reality, these two have their differences. People use these terms interchangeably because these fall under the digital asset category in the crypto space.

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Jay Crypto

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Last updated Oct 17, 2022 at 09:14 PM

Posted Oct 7, 2022 at 04:00 AM

coins and tokens

The crypto ecosystem has expanded at a huge rate since its inception. From a common user’s perspective, coins and tokens are the same things. But, in reality, these asset classes have their differences. We will look into these technical differences in the blog, so you can get the basic concept, and make informed decisions while working in the crypto market. Let’s get going!!

 Introduction of Coins

A coin can be described as a digital asset that has its own native blockchain network on which it operates.

Bitcoin is the flagship blockchain network that came into existence in 2009. Many crypto platforms are built from the ground up as alternatives or improvements to Bitcoin and other current digital ledgers. Building a network utilizing a white-label or open-source infrastructure is also possible, but it takes time and a specific level of skills. 

Since you cannot establish a coin without creating a blockchain first, it is difficult to start a coin. The crypto ecosystem is expanding at a crazy speed. 

The crypto ecosystem has expanded at a huge rate since its inception. From a common user’s perspective, coins and tokens are the same things. But, in reality, these asset classes have their differences. We will look into these technical differences in the blog, so you can get the basic concept, and make informed decisions while working in the crypto market. Let’s get going!!

 Introduction of Coins

A coin can be described as a digital asset that has its own native blockchain network on which it operates.

Bitcoin is the flagship blockchain network that came into existence in 2009. Many crypto platforms are built from the ground up as alternatives or improvements to Bitcoin and other current digital ledgers. Building a network utilizing a white-label or open-source infrastructure is also possible, but it takes time and a specific level of skills. 

Since you cannot establish a coin without creating a blockchain first, it is difficult to start a coin. The crypto ecosystem is expanding at a crazy speed. 

coins and tokens 2

Source: ExplodingTopics

Bitcoin, the first blockchain network, is a classic example of a coin. BTC is supported by its own blockchain that shares the same name and is utilized to generate network payment fees. Since Bitcoin was the very first cryptocurrency, coins that arose after it are known as altcoins – alternative coins.

Following are some of the features that can assist you to identify coins:

  1. Coins Have their Own Blockchain

With no exception, all digital coins operate within their own blockchain systems.

Coins are native currencies that function on primary chains as well as forks (new chains established as a consequence of algorithm updates). For instance, once Bitcoin was divided into two blockchain networks, Bitcoin and Bitcoin Cash, BTC retained the native currency of the initial network, while BCH debuted as a totally different new currency for the forked chain.

An autonomous blockchain enables the development of new functions and provides unique technical solutions. Among the criteria that influence the coin's inherent worth are the effectiveness and integrity of the foundation blockchain systems.

  1. You can Mine Coins

Across most blockchains, cryptocurrencies are created through a method named mining. Members in the blockchain who authenticate transactions are compensated with newly created coins. Simultaneously, each time users make transactions on the platform, they pay a system charge, which is then allocated for incentives.

  1. Can Act as an Alternative to Cash

Coins could work as electronic cash because they have the same characteristics as fiat currencies: safety, rarity, stability, mobility, and value storage. Certain organizations, including Microsoft, PayPal, Starbucks, and Virgin Airlines, have already embraced some digital currencies as a medium of transaction.

Below is a list of five coins in the crypto ecosystem:

  • Bitcoin (BTC)
  • Ethereum (ETH)
  • Binance Coin (BNB)
  • Ripple (XRP)
  • Cardano (ADA)
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List of Top Coins in Crypto Space 

Source: CoinMarketCap

What are Tokens in the Crypto Ecosystem? 

A token is a type of digital currency that denotes an item or service.

Tokens, unlike currencies, don't really possess their own blockchain network and are instead created above the already existing blockchain. Tokens are also not generated during the transaction verification process. These are minted. The overall quantity of tokens minted is determined by the issuing project's various requirements.

Tokens can serve a variety of functions. They can be utilized to raise revenue or to provide certain services. Some tokens can even be used to represent currency on another network. Such tokens are known as "wrapped tokens," and they track the value of the fundamental asset. Another popular sort of token is a stablecoin, which is a token that tracks the rate of the US dollar.

Tokens are Always Created

Established distributed ledgers are always employed to produce tokens. The simplest option is to employ fully prepared token creation systems. You do not need any coding abilities to use such platforms. It will identical to a website builder to create your own website.

Building a token with complex functionality, on the other hand, will necessitate additional technical knowledge. First, you must set up a smart contract. Simply explained, smart contracts are self-executing digital contracts with terms and conditions typed into code and implemented on a blockchain. Some networks allow users to copy the code of a smart contract from the repository of a software development platform. 

To create tokens, you must know about several standards on which these assets are developed:

ERC-20:

ERC-20 is a fungible token standard. “Fungible” indicates that all tokens are identical in structure and significance and so interchangeable. This standard is typically utilized when creating tokens for voting, payments, staking, and other purposes.

coins and tokens 4

Chainlink is Developed on ERC-20 token Standard

 ERC-721

ERC-721 is a non-fungible token standard. These tokens are one-of-a-kind and can't be swapped for other tokens of the identical type. Tokens that are not fungible are ideal for making collectibles, visual art, accessibility keys, or in-game objects. Their distinct qualities enable an NFT to be linked to a picture kept on an external server, allowing a token to have a visual representation.

coins and tokens 5

NFTs developed on the ERC-721 token standard

ERC-1155

The ERC-1155 token standard provides for the creation of a variety of token types, including fungible, non-fungible, semi-fungible, and other combinations. Assume the purpose is to develop a game with two sorts of tokens: one for in-game payments (a fungible token) and another for in-game products (an NFT). One smart contract may be written for both tokens using ERC-1155, which is more efficient than constructing two separate contracts using ERC-20 and ERC-721 standards.

Working of Tokens

Tokens can be employed to allow users to communicate with the project's services and platform. The project defines the precise set of token features.

The Basic Attention Token (BAT), for instance, grants access to many branding services on the Brave web browser. BAT tokens can be used to compensate for advertisements. After that, the tokens are allocated to publishers, marketers, and ad viewers. Producers and marketers profit without the need for intermediaries, while users get reimbursed for the "attention" they pay to adverts presented online.

Tokens can be cash, credentials, in-game stuff, and so on. Blockchain-based metaverses often need the use of digital goods in the shape of NFTs. These tokens represent various types of objects in the game, such as virtual lands, characters, gadgets, armor, and so on. All of these virtual objects are sold online with the native platform's token. 

Types of Tokens

Let’s look into the many types of tokens: 

Utility Tokens

Utility tokens offer their owners exposure to a blockchain-based project's platform or individual services. Some utility tokens additionally provide token holders with discounts, awards, or extra perks. A true utility asset has no promise of gain. If this is not the case, it is a mix of a security token and a utility token. Utility tokens are frequently produced via an initial coin offering (ICO).

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Source: SwapZone

Security Tokens

A security token is a blockchain-enabled virtual version of conventional security. Owners of security tokens have really no ownership and control over the entity that generated the tokens. Instead, they may have some additional rights tied to it. Security tokens, like traditional securities, are governed by regulatory authorities such as the United States Securities and Exchange Commission (SEC).

Payment Tokens

Payment tokens exist solely to serve as a mechanism of transaction. Unlike the utility tokens, these tokens don't interact in any particular way with blockchain-enabled apps.

Equity Tokens

A subclass of security tokens is equity tokens.

They act similarly to traditional investment instruments and offer token holders control. Holders are also guaranteed a portion of the company's profits as well as a vote on significant decisions. An equity token offering (ETO) is used to create equity tokens.

Conclusion

Coins and tokens have different technical factors. Both of these assets are crypto and are digital classes. Understanding the distinction between coins and tokens is critical for any cryptocurrency fan who wishes to delve deeply into the cryptocurrency industry. This article's detailed discussion of coins and tokens can help you avoid confusion with crypto jargon.

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