Difference between Coin and Token

What is the difference between Coin and Token?

Welcome to our today’s blog. After asking the question in the title, let’s see how we would call a coin in Croatian, and how a token. For a crypto token, we would say token, while for coin they would use the word coin or coin. Although at first we all think that there is no difference, we are still wrong. In this blog, we explain how to distinguish a coin from a chip and learn about their different uses.


Terminology: Although many alternately use the terms ‘crypto coin’, ‘crypto token’ and ‘cryptocurrency‘, i.e. in English ‘ crypto coin’, ‘crypto token’, and ‘cryptocurrency’
 – it should be emphasized that it is not the same, but there are technical differences in the way they are made.

Authenticity: While crypto coins are a form of digital currency that is most often native to some blockchain network (e.g., Ether on the Ethereum Blockchain), crypto tokens are digital assets built on an existing blockchain using smart contracts.

Function: Coins for the main purpose have a store of value, but also act as a medium of exchange. Here we see a similarity with traditional fiat currencies which is why crypto coins are also called cryptocurrencies. Tokens, on the other hand, have a number of functions such as representing a physical object, or granting access to the services/features of a platform.

More About Coins And Crypto Coins

A basic example of a coin is Bitcoin, BTC. It is powered by its own eponymous blockchain, and is used to pay transaction fees online. Many blockchain networks have been created from scratch as alternative or improved versions of Bitcoin. Since it is impossible to create a coin without building a new blockchain, we can conclude that this is a rather complex process. In theShort – crypto coin is a form of digital currency that is usually native to its blockchain Miners being on Pow, and earning on the PoS mechanism. Some examples of coins are: Bitcoin (BTC) – PoW, Ether 2.0 (ETHS) – PoS and Ethereum (ETHW) – PoW.

Coin

Features of coins

Own blockchain: They do everything on their own blockchain. For example, after Bitcoin split into two blockchains, Bitcoin and Bitcoin Cash, BTC nevertheless remained the original coin of the chain, while a completely separate new coin for the separate chain — BCH — emerged.

It is the independent blockchain that allows the creation of new functions, and offers unique technical solutions. The efficiency and security of the underlying blockchain technology are one of the factors that affect the value of the coin itself.

They function as traditional money: They act as fiat currencies due to their characteristics such as security, quantity limitation, durability, portability and storage of value. Some crypto coins have already been accepted as a medium of exchange for network companies such as:
Microsoft, PayPal, Starbucks, Virgin Airlines and others.

In most blockchain networks, new coins are issued by a process called mining. All network participants who confirm transactions – miners or “miners”, are rewarded with freshly minted coins. At the same time, every time users make transactions online, such as
sending or receiving funds
– they pay an online fee that is further spent on rewards.

Now, before we move on to a crypto token, “take a look” at the extracted cryptocurrencies that qualify as coins:

  • Bitcoin
  • Ethereum
  • BNB
  • Cardano
  • XRP
  • Solana
  • Polkadot
  • Dogecoin
  • TRON
  • Avalanche

What is Crypto Token and how is it created?

Crypto token

A token is a digital unit of value that represents an asset or utility. Tokens, contrary to coins
, do not have their own blockchain
, and are issued independently of existing networks. Also, tokens can’t be done.”miners” in the process of validating crypto transactions. Instead, tokens were forged. The amount of tokens minted varies from token to token, with the number depending on the different conditions set by the issuance project. Tokens are used for a variety of purposes, such as raising funds or accessing certain services. Some tokens may even represent coins on another network. Such tokens are called “wrapped tokens” , and they track the price of the underlying asset. Another very popular type of token among investors is stablecoin – a token that tracks the price of the US dollar. In one of our past blogs, we wrote in
Tether (USDT)
 is the first and most famous stablecoin. Here’s a list of the most famous tokens in the crypto market:

  • Tether
  • 10000000
  • Bitcoin USD
  • Dai
  • Wrapped Bitcoin
  • LEO Token
  • Shiba Inu
  • Lido Staked Ether
  • Chainlink

Tokens are always created on the existing blockchain. In order to create a token, it is not necessary to know how to code – there are already ready-made solutions for generating tokens. This could be compared to creating a website on one of the platforms that is “friendly” to use. However, in order to “build” a token with more advanced features, it is still necessary to be a little more technically shod considering that the process itself requires – the implementation of a smart contract, that is, digital contracts that are executed themselves according to the terms and conditions that are written in the code on the blockchain.

What is a token standard?

The token standard represents a kind of framework in the process of creating tokens. Specifically, it is the standard that defines a smart contract, and thus the features of token features. With different blockchains, we also come across different token standards. The most commonly used blockchain to run tokens is Ethereum, and it comes “bundled” with its standards that have been introduced as
Ethereum Requests for Comments (ERC)
. Let’s look at 3 different types of token standards:

ERC-20

  • Characteristic of fungible tokens in which all tokens are of exactly the same type and value, and are thus interchangeable;
  • Application: elections and voting, payments, and the like;
  • Example: Chainlink is a software platform also known as “oracle,” which in crypto jargon refers to technology that brings real-time data from online sources to blockchain. Its original currency is the Link – ERC20 token on the Ethereum network, and serves as the currency to pay for its operations. Each LINK token is always the same as any other ISSUED LINK token.

ERC-721

  • Characteristic of non-fungible tokens (NfTs), unique and cannot be exchanged for other tokens of the same type.
  • Application: digital collectibles, digital art, creation of access crypto keys, crypto wallets, but also “items” for games (eng. In-game items) such as earth, avatars, tools, armor, etc.
  • Unique property: allow nft to be associated with an image stored on an external server, which allows the token to have a visual representation.

ERC-1155

  • This token standard allows the creation of a number of different types of tokens: interchangeable, irreplaceable, semi-fungible tokens, but also other configurations;
  • Application: Let’s say that the “game developer” wants to design a game in which there are two types of tokens – one that is intended for in-game payments (exchangeable token) and the other that is intended for in-game items (NfTs) – it would be more efficient for him to use the ERC-1155 standard standard, allowing both tokens to be created with just one smart contract. If this standard did not exist, the alternative would be to create two separate treaties with the ERC-20 and ERC-721 standards.

What is the purpose, What are the advantages of the tokens?

Among crypto startups, it is popular to use tokens to raise funds for development. The way startups do this is to go out on the stock market with an initial coin offering (IcO), where they sell them to investors. The tokens sold serve them on new projects as their currency, which gives users access to various features. It is here that the main benefit of the token is “hidden”, which is to avoid the need to create a completely new blockchain, but individual crypto startups can devote themselves to the development of the platform and functionalists, instead of “spending” resources on the development of the public ledger of the new Blockchain (eng. public ledger). In addition to financing crypto projects, another advantage that tokens bring to the crypto world is asset tokenization …. Asset tokenization) because it is precisely tokens that can represent any coins or digital assets in chains of blocks.

How does it work and what types of tokens are there?

Tokens allow users to interactively use a specific platform and services of a project.


Here’s an example
: Brave is a web browser where the BAT token allows users to pay for various marketing services. For example, users can pay for ads with BAT tokens. This ensures that ad publishers and advertisers make money without intermediaries.

There are three types of tokens, and each of them may fall into more than one of the categories listed below. All types of tokens have in common that they can be issued to finance the development of a project, and we classify them into:

  • Security tokens (eng. Security Token) which are essentially a digital and tokenized form of a traditional securities .
  • Capital tokens (eng. Equity Token) that fall under the security but function as a traditional asset of shares, and provide the holder with ownership and voting rights.
  • Utility tokens (Eng. Utility tokens) that allow owners to access an application or specific services of a blockchain-based project. These tokens are usually issued through an initial coin offering (IcO)
  • Payment tokens (eng. Payment tokens used to pay for goods and services.

Let's look at the learned...

COINS VS TOKEN IN SHORT LINES

  • Coins and tokens are often misinterpreted as the same thing.
  • Coins are native to their blockchains.
  • Tokens are created on existing block chains.
  • The functionalities of coins and tokens often overlap.

The main difference is based on purpose and function. Here, the coin is considered a financial asset with the only payment function. As such, it shows most of the following characteristics:


  • Interchangeability
    , which means that one unit is equal to another;

  • Divisibility
    , which means that each unit can be divided into smaller units;

  • Acceptability
     , which means that cryptocurrency is widely accepted as a medium of exchange;

  • Limited supply
    , which means that the total number of units is limited and constant;

  • Uniformity,
    which means that all versions of a given name have the same value;

  • Portability
    , which means that units can be transferred and exchanged;

  • Durability
    , which means that units can be used repeatedly without losing value.

In contrast, tokens have extended functionality that goes beyond money.

We hope that our blog today helped you master the differences between coins and tokens. In the following blog, we talk about downloading Wallet to a smart device.

Until next blog,

Your Kriptomat.hr Team