Digital currencies have become a popular choice, but their vocabulary can sometimes be confusing for users. It is a smart idea to learn the cryptoverse’s nuances. This can be difficult and overwhelming.
Although tokens and coins are often interchangeable, technically there is a distinction between coins and tokens.
To better understand crypto markets, let’s first distinguish between coins and tokens.
Learn about crypto coins
A crypto coin refers to a crypto asset with its own blockchain. They are actually native to their blockchain.
BTC, the Bitcoin blockchain’s cryptocurrency, is the most well-known. Similar to the Ethereum blockchain, which uses ETH, while the Litecoin blockchain uses LTC, etc.
Crypto coins, like traditional or fiat currencies, are designed to store value and act as a medium of exchange. Crypto coins can be minted using either a Proof of Work consensus mechanism (PoW), or a Proof of Stake mechanism (PoS).
You can use crypto coins as
- Storing value
- Payments for goods and services
- Exchange for other currencies
What is a crypto token?
Although crypto tokens look very similar to cryptocurrency coins, they are made using blockchain technology. Crypto tokens, however, are not natively compatible with the blockchain.
The ERC20 token, for example, is any token that uses the Ethereum blockchain. A blockchain can only have one native currency. It can also have hundreds of tokens added to it. ETH, for example, is the native cryptocurrency of the Ethereum Blockchain. However, many other tokens can also use the Ethereum blockchain. MATIC, LINK and USDT are just a few of the crypto tokens that have been built on top of Ethereum.
It is interesting that when creating a token, one does not build a blockchain, write all the code, and worry about validation. Instead, one simply creates a token on another’s blockchain. The token team can also rely on the network’s stability and safety to ensure the network is safe.
To make it easier for you to understand, coins can be used for governance, transaction fees and other related uses. However, tokens can represent a multitude of real-world applications, including gaming and stablecoins.
Tokens, unlike crypto currencies, are not mined. Instead, they are created by the project developer and distributed. Dai, ChainLink and Wrapped Bitcoin are some of the most well-known crypto tokens.
Here are some types of crypto tokens:
- Utility tokens allow you to access certain services or products that have been developed by the token issuer.
- Governance tokens give holders voting rights in a decentralized autonomous organization (DAO).
The difference between a cryptocurrency coin and a token is not significant. Blockchain technology is growing rapidly and digital tokens and coins will only continue to expand. The question of whether to buy crypto coins or tokens will depend on the goal of the holder.