The terms cryptocurrency coin and token is often used interchangeably, even though they have different meanings. Fundamentally speaking, they are similar because they both have value and are used for making payments. The difference is in terms of utility.
Crypto coins and tokens are used for different things. Often, a coin can be used, a token cannot be used, and vice versa. In addition, some marketplaces out there refrain from accepting tokens; however, coins are accepted.
Coins and tokens are a similar comparison to traders and investors. We know that all traders invest; however, not all investors trade. Let’s discuss the differences between coins and tokens so you know what you’re referring to next time you use these terms.
What is a Crypto Coin?
When bitcoin was first introduced, it defined the term crypto coin. Let’s discuss the characteristics of a crypto coin vs. a token. For one, a coin operates on its blockchain. The blockchain tracks its every move, including transactions of the coin.
When you pay someone using Ethereum, the transaction is recorded on the Ethereum blockchain. The receipt is added to the blockchain if the same person later pays you back in Bitcoin. Each transaction is secured and available to every member of the network.
A coin acts as money. Bitcoin was created to replace money, leading to other coins like ETH, NEO, and Litecoin. Many corporations have started accepting bitcoin as a payment method—companies such as Amazon, Microsoft, and even Tesla.
Coins can be mined. Crypto coins can be earned in two ways. One is through mining on the proof of work mechanism. This method is the most traditional but gets harder by the day because there isn’t a significant sum of bitcoins left to mine. The other way is through the proof of stake system. This is an easier method of earning coins which also uses less energy.
What is a Token?
As we discussed with coins, they work under a blockchain. However, tokens do not. Instead, they work under crypto coins blockchains such as Ethereum. Some tokens on the Ethereum network include BAT, BNT, Tether, and some stablecoins.
As the blockchain runs crypto coins transactions, tokens are on smart contracts. When it’s used, it gets moved from one place to the next. This can be compared to NFTs. NFTs are unique, each on its own. Therefore, the ownership is handled manually if an NFT is sold or bought. They have sentimental or often artistic value; therefore, they’re similar to utility tokens.
Cryptocurrency Coin and Token – The Differences:
The most notable difference between coins and tokens is that the account balance changes with crypto coins. Whereas with tokens, it merely moves from one place to another. When transferring money from your account to another account, your money is not moved. The bank edits the balances on both accounts. The same idea pertains to the existing blockchain network. The balance changes, and the transaction takes note of it.
Another difference between them is what they represent and stand for. A crypto coin, in simple terms, is digital money. A token can represent an asset or deed similar to an NFT. To put it simply, it’s symbolizes what you own, but a crypto coin represents what you are capable of possessing. Tokens existed long before cryptocurrencies; therefore, it has little to do with cryptocurrency.
Conclusion
By now, you know the difference between a cryptocurrency coin and token. An easy way to know for what purpose each is used is to specify what it’s being used for. If it’s a product you’re looking to buy, you’ll need to use coins. If it’s a service, then utility tokens are better.
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