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What is the Difference Between a Coin and a Token?
January 2023
Ever since the release of Bitcoin in 2009, there have been been thousands upon thousands of cryptocurrencies created. Thanks to Ethereum and other cryptocurrencies, the technology of crypto-tokens has grown immensely. However, many still don't understand blockchain technology and more specifically the use of coins and tokens as digital assets. This article seeks to help demystify the difference between coins and tokens.
What is a Blockchain and What Purpose Does it Serve?
A blockchain is a public database that shared across a peer--to-peer network of computers. Since data is stored in "blocks" with consecutive blocks "chained" together, the technology is called "blockchain." Each child block cryptographically references its parent block. Each computer in the network is called a "node". Each node must agree upon each new block and the chain as a whole. This is referred to as "consensus." Data in a block cannot be changed without changing all subsequent blocks. All changes must be sent back through the consensus process.
The purpose of the blockchain is to provide a more secure, reliable, and transparent way to store data. It is important to note that while cryptocurrency is one of the most common uses of blockchain technology, there are many other applications of blockchain currently in use.
Cryptocurrency: Coins vs Tokens
Cryptocurrency is a digital asset that offers the holder some benefit. Cryptocurrencies reside on a blockchain and adhere to the standards of their particular decentralized network. There are two forms of cryptocurrency: coins and tokens. Coins operate on their own blockchain. Coin developers are responsible for setting network standards, building the infrastructure, and maintaining their blockchain. Tokens do not operate on their own blockchain. Instead, they utilize the network standards and infrastructure of smart contract enabled blockchains. Only those blockchains with smart contract capabilities can be used to create tokens. Thus, there is a parent-child relationship between these coins and tokens. The term "native" is used to refer to the coin or token that is specific to the project. For example, Bitcoin is the native coin of the Bitcoin project and the Bitcoin blockchain while the Matic token is the native token of the Polygon project and is built on top of the ethereum blockchain.
The Difference Between Coins and Tokens
The following table illustrates the difference between a coin and token. Although these terms are commonly interchanged, the two digital assets are substantially different.
List of Coins
- Bitcoin
- Ethereum
- Ripple
- EOS
- TRON
- Solana
Purpose of Coins
- Serves the generalized purpose of currency
Uses of Coins
- Store of value
- To make digital transactions faster cheaper
- To solve complex issues like cross border pmt
List of Tokens
- USD Coin
(a special kind of "token" called a stablecoin) - Shibu Inu
- Dai
- Uniswap
- Wrapped Bitcoin
Purpose of Tokens
- Serves no generalized purpose. Tokens support the objectives of their projects. These objectives vary.
Uses of Tokens
- Support dApps
- Decentralized Finance (DeFi). For instance, the creation of Stable Coins, coins that are pegged to the USD.
- To establish liquidity by allowing tokens to be swapped
- To support supply chain management by providing for transparent tracking of a product's chain of custody (Examples: Dorae, and OriginTrail)
- To support crowdfunding through the transfer of funds upon the meeting of community objectives.
Smart Contract Platforms
If the developers of a project do not have their own blockchain network but they want to create a decentralized platform with its own native digital asset, they must make use of the smart contract capabilities of an existing blockchain network. Not all networks are smart contract enabled. Below is a list of Smart Contract Platforms.
- Ethereum
- Cardano
- Solana
- Avalanche
- Tron
- EOS.IO
Conclusion
Blockchain, cryptocurrency, coin, token, smart contract-- there is much that needs to be digested when entering the world of blockchain networks and yet much remains unexplored. This article provides only a glimpse at blockchain with regards to cryptocurrency. Hopefully it provided enough to spark an interest to dig deeper as the industry continues to grow and adjust to the needs of businesses, governments, and individuals.
For more articles related to blockchain technology, see the following articles:
- Fully On-Chain NFT Art: Using SVGs for Smart Contracts
- How Many Blockchains Does the World Have? : Uncovering Decentralization
- A Beginner's Guide To Using a Cryptocurrency Block Explorer
- A Deeper Look at Non-Fungible Tokens (NFTs): History, Creation and Marketplace
- Top 8 Technology Trends: Technology to Know
- A Guide to Understanding NFT Domains and the Decentralized Web
- Exploring the ABCs of Blockchain Technology: Cryptocurrencies, NFTs, Smart Contracts, & Web3
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