Difference Between Crypto Coin and Crypto Token
Cryptocurrency is currently a trending topic. And it has made quite a fan base that has even gone on to invest into such a rewarding yet somewhat abstract digital asset class. Just as one should look into the risks involved and before leaping at the gains expected before investing in crypto, it is equally vital to be associated with its technical terms. It is a common misconception to inadvertently use the terms “crypto tokens” and “cryptocurrencies” interchangeably. A crypto coin and a crypto token are fundamentally alike. They both hold specific values and help process payments. It is even possible to swap tokens for coins and vice versa.
The primary difference between a crypto coin and a token lies in each of their utility. There exist certain things that are possible with tokens but not with coins. Similarly, a lot of marketplaces will accept payment via coins but not tokens.
What is a Digital Asset?
If you are just beginning to scratch the surface of cryptocurrency and blockchain, it is crucial to be familiar enough with cryptocurrencies, digital assets, and tokens so that you can differentiate among these three. Although these terms are often presentably interchanged, they are set apart by several chief characteristics. Fundamentally speaking, a digital asset is referred to as a non-tangible asset that exists in a digital format that is traded and stored. About blockchain, cryptocurrency and crypto tokens are both two different kinds of digital assets.
Cryptocurrency and tokens are distinct kinds of digital assets that rely on cryptography, an advanced encryption technology that ensures crypto assets retain their authenticity through near-perfect eradication of chances of counterfeit or double-spending.
The primary difference that exists between these two subclasses of a digital asset is that cryptocurrencies are an asset native to the blockchain such as BTC or ETH whereas tokens are forged off as a fragment of a platform that relies on a prevailing blockchain, such as the multiple ERC-20 tokens that make up the Ethereum ecosystem.
What is Crypto Coin?
A cryptocurrency is an asset that is native to the blockchain network. It can be traded, used as a medium to transact and exchange, and utilized as an object that has a stored value. A cryptocurrency is issued internally according to the blockchain protocol upon which it runs. This is why the cryptocurrency is often regarded as the native currency of blockchain. In lots of cases, cryptocurrencies are not just used as a method to pay transaction fees across the network but are also used to provide incentives to users that maintain and keep the cryptocurrency’s network safe and secure.
In general, cryptocurrencies exhibit the below-listed features:
- It is decentralized, or at the very least does not rely on authorities issued by the center. Instead, cryptocurrencies rely on codes in order to accomplish transactions and issuance.
- It is created on a blockchain or some other Distributed Ledger Technology (DLT), which lets the partakers administer and execute the rules of a system automatically, in a fashion that seems unreliable.
- It makes use of cryptography to make sure the underlying structure and network system cryptocurrency stay secure.
How a Crypto Coin used?
Digital coins are usually made use of similar to how a real-life coin is useful– as money. Coins such as Bitcoin, Monero, and Litecoin are nothing more than coins in your wallet or piggy bank. They generally do not serve any other purpose other than money. Such crypto coins are used:
- To transfer money (you can transact and exchange value through them)
- As a stored object of value (they can be stored for later to be exchanged for something valuable)
- For a unit of account (you can value goods or services via them)
Few digital coins (such as NEO, DASH, and Ether) consist of more features than simply acting as another form of money. Below listed are some of those uses:
- NEO (NEO) helps earn a dividend while it’s stashed inside a wallet. This dividend obtained is known as GAS. Tokens can be created through NEO, just like they can be built on Ethereum. If you intend to transfer a token via the NEO network, you are required to pay a transaction fee known as GAS. Similarly, in the case of Ether, you are needed to pay Ethereum fees.
- Accumulating and storing enough Dash (DASH) enables users to participate and vote on crucial decisions meant to run the DASH network. If an idea pops up that aims to upgrade the DASH network, it would be up to those who hold enough DASH who can vote and decide on whether the upgrade should be proceeded with. Such voting rights enable the holders of DASH to direct and influence how the project progresses.
- Ether (ETH) is the fuel for transactions that are completed via the Ethereum network. Irrespective of the fact that a token is built on Ethereum, ETH would be still necessary if you aim to send a token. This covers up for the mining costs (it helps run the machines that verify and secure transactions across the Ethereum network).
What is Crypto Token?
Tokens, also known as crypto tokens, are valuable digital asset units that are developed by blockchain-based establishments or projects apart from prevailing blockchain networks. Although crypto tokens bear similarities and share profound compatibility with the cryptocurrencies of the very network, tokens are an entirely distinct digital asset class.
Besides possessing value and the functionality of transactions similar to cryptocurrencies, crypto tokens are designed so as to resemble physical assets or more conventional digital assets, or a specific service or utility. For example, there exist crypto tokens that signify concrete assets such as art and real estate, as well as immaterial assets such as storage space for data or processing power. Tokens also act as a mechanism to supervise voting on particular parameters such as system protocol upgrades and other influenceable decisions that direct and decide the fate of several blockchain projects.
How Are Crypto Tokens Created?
Even though it may sound like a difficult feat to achieve, it actually takes surprisingly diminutive technical abilities to create crypto tokens. Although it is something that should be avoided by an absolute newbie, anyone with a little programming knowledge will survive this ordeal for as long as one might think. It does require the developer to pay for a few of the native coins of the blockchain via which the token is being created. For instance, if the token is being forged through Ethereum, the creator is compelled to spend some of their ETH cryptocurrency to make the network’s miners issue validation to the token transaction (creation).
It is vital to remember that there involves a fee charged on every token transaction across a blockchain and not just during the creation of that token. Hence, any application created off Ethereum must make use of ETH coins to allow from one user to another or between the app and the user to transfer the application-specific tokens. This is similar to how coin transactions require fees to be paid so as to keep the network safe and secure.
What is the Purpose of Crypto Tokens?
Most tokens are created to be used through decentralized applications, or dApps. When developers decide to create their own token, it is up to them to decide on how many units they intend to create and the location these new tokens will be sent once created. Of course, they are required to pay for the native cryptocurrency of the blockchain that is being used to create the token. Once created, tokens are generally used for activation of features of the application they were built to work with.
For instance, Musicoin is a token that lets users access diverse features available on the Musicoin platform. This may include playing a song or streaming a music video. Binance too has its own token. When users trade using its token BNB (Binance Token), their fees are reduced by half.
Conclusion
Although there does not exist much distinctness between cryptocurrency and tokens, it can prove to be a major headache if it is often overlooked. A quick tip that helps decide whether you should use a coin or a token is to carefully consider and observe whatever it is you are buying. If it is a product, which is the case mostly, you would require coins. If it is a service that you wish to avail, there exist pretty handy utility tokens.
