Coin versus Token: What is the difference?
The use of this novel and exciting asset class has exploded in the past few years, as the number of crypto users reached 575 million in 2023, according to Statista. Moreover, a report by Morning Consult reveals that over 70% of cryptocurrency owners are men and 30% – women.
Coins and tokens are two common types of cryptocurrencies, often used interchangeably. So, are tokens and coins the same thing? No, the difference between a coin and a token is very distinct.
This article aims to help you understand the key difference between coins and tokens and delves deeper into their roles in the crypto world.
What is a coin?
A crypto coin is a digital asset, operating on its own blockchain, for example, Bitcoin’s blockchain coin is BTC, and Ethereum’s blockchain coin is ETH. This means that coins have their standalone, independent blockchains.
The coin is created either through the process known as mining, utilizing a Proof of Work (PoW) consensus mechanism, or through staking using the Proof of Stake (PoS) consensus mechanism. These are both consensus algorithm mechanisms. PoW was created to prevent double-spending within the digital payment systems, whereas PoS is aimed at overcoming scalability limitations in the PoW network.
What is a coin used for?
The crypto coin was created to work in the same way as traditional money does. With crypto coins, you can store value and exchange it for other currencies. Also, you can use your coins to pay for various goods and services, as well as transfer them to whoever you want. Furthermore, certain crypto coins use smart contracts to offer various extra features, for example, DASH enables users to vote within decentralized autonomous organizations.
Examples of coins
There are numerous coins available in the crypto market, including:
Bitcoin (BTC)
This is the first and the most well-known crypto coin created by a developer or a group of developers known as “Satoshi Nakamoto”.
Did you know that the first purchase made using cryptocurrency was in 2010 when Laszlo Hanyecz paid 10,000 Bitcoin to buy two pizzas?
Cardano (ADA)
Cardano provides an open-source and decentralized crypto platform and its coin: ADA is often referred to as a “green crypto coin”.
Ether (ETH)
Ether is a popular crypto coin, that has turned into home to lots of blockchain projects due to implementing smart contract technology.
What is a token?
A token is created utilizing blockchain technology (like a coin), but it isn’t native to a blockchain. That is to say, the difference between a coin and a token is that a token is built on top of an existing blockchain. This means that one blockchain can have many tokens.
Tokens can be used for various purposes. Here are the most common types:
- With utility tokens, you can play different games or access a wide range of decentralized services.
- Governance tokens allow users to vote on proposed changes to the protocol.
- A security token refers to a tokenized security – a digital representation of different assets, like bonds, equities, etc.
- A non-fungible token (or NFT) is a unique token that can’t be replicated. With NFTs, you can create music, digital art, and a lot more.
Examples of tokens
The world of crypto tokens is indeed diverse. Explore some examples below:
- The utility tokens of Filecoin and Arweave aim to help users store data on their decentralized platforms, focusing on the concept of cloud storage.
- Axie Infinity provides a token, known as ‘’Smooth Love Potions’’, allowing users to perform exclusive tasks within the game.
Vone, the first Web 3 communication platform, offers users a Vone token – a cryptocurrency that powers the Vone ecosystem. With Vone token, you can buy and sell a wide variety of products and services within the Vone ecosystem.
Token vs Coin
Token
- Is built on an existing blockchain
- Represents any asset or provides users with different platform-specific features
- Is used for multiple purposes and can be of different types, such as utility, security, and non-fungible tokens
- Examples include Vone Token and Smooth Love Potion
COIN
Has its own standalone independent blockchain
Acts as a medium of exchange
Is mined through Proof of Work (PoW) or earned through Proof of Stake (PoS) consensus algorithms
Examples include BTC, ETH, and ADA
The Bottom Line
Having a clear idea of the difference between a coin and a token can help you make informed crypto-related decisions. Whether it’s worth buying coins or tokens is very subjective depending on your goals.
Usually, a coin is considered to be a more suitable option for both general transactions and value preservation, whereas a token is commonly used to achieve specific goals and create value. However, tokens and coins can also be utilized in complementary ways within the diverse crypto ecosystem.