Understanding the Difference Between Coins and Tokens

Beginner’s Guide / 19.12.2018

What are the differences between Coin and Token?

You’ve probably heard terms such as cryptocurrencies, tokens, coins, altcoins, or digital/virtual currencies. But what do all these terms actually mean? They are often misused instead of each other. But there is a fine difference between them. In the present paper, we will discuss the differences between coin and token.

What is Cryptocurrency?

Cryptocurrencies are digital or virtual currency units that are encrypted with cryptographic algorithms to enable and verify transactions. These processes work in a public book called Blockchain, which records and verifies them chronologically. Even if most crypto coins are not used as a currency or exchange tool, all coins or tokens are considered cryptocurrencies.

The term cryptocurrency is a misleading term. Because it technically refers to a unit of account, a value store, and a means of change. All of these features reflect Bitcoin‘s characteristics. Since the cryptocurrency field is created when bitcoin occurs, all other crypto coins developed after Bitcoin are normally seen as a cryptocurrency. However, most cryptocurrencies do not actually have the characteristics of a currency.

What is a Coin?

Alternate currencies or altcoins, also called coins, are a type of crypto and work independently from another platform. Each has its own natural Blockchains, where the money is found. Most of the existing altcoins are Bitcoin (a fork) version, created using some of the modifications developed in the base code using Bitcoin’s original protocol. Thus new coins with different characteristics emerged—examples of forked altcoins: Litecoin, Dogecoin, Bitcoin Cash, etc.

There are also altcoins not created with bitcoin forks. Altcoins, such as Ethereum, Monero, and Ripple, use codes designed to support their own currency chains and their in-house currency. This crypto category is quite confusing. However, some cryptocurrencies, in addition to their use as coins, have other functions.

What is a Token?

A token is a type of cryptocurrency usually created on top of another Blockchain (without currency usage). Tokens usually represent a particular type of program or entity, or sometimes both. Tokens, usually, are created through an Initial Coin Offering (ICO), a way to raise money by launching a new cryptocurrency or token to finance the project’s development and announced to the public.

The tokens are much more easily removed from the coins since the original protocol’s source code does not need to be modified, and the block is formed. Most tokens are hosted in Ethereum‘s Blockchain, and Ether is the primary currency used in the distributed book. Thus, basically, tokens are an instrument of access or a particular application built on a Blockchain system with a market but still technically does not have a currency.

Another difference is that the cones can exist independently, but the token requires other existing and active Blockchain platforms.

Closing Thoughts

The thin line between coin and token still creates confusion between crypto investors and financial regulators. However, the main differences are their structures. Because coins can be used as currency units and have their own Blockchains. Tokens are located on a Blockchain for use in decentralized applications.
Born in Bucharest, Marius is the founder of Crypto Adventure. Since his first contact with Bitcoin and cryptocurrencies, he never stopped believing that they are one of the most important innovations of our time, which will forever change the way business is done.