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What the difference between a token and a coin

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 Difference between a token and a coin!!


While they both represent blockchain-based cryptocurrencies tokens are not the same as coins. This distinction becomes crucial when choosing to invest in or build a cryptocurrency.  In this article, we will talk in detail about the difference between a token and a coin.


While they both represent blockchain-based cryptocurrencies tokens are not the same as coins. This distinction becomes crucial when choosing to invest in or build a cryptocurrency.

In this article, we will talk in detail about the difference between a token and a coin.



What is Coin

  • traditionally define a coin as a metal with an official seal issued by a government and used as currency.
  • As for cryptocurrencies, a coin is defined as a digital currency powered by its own blockchain with no physical real-world equivalent.
  • A blockchain ledger is like a database passed from one node to another. The data represents entries about how many currency units each address holds. The conditions under which data is passed and how nodes communicate with each other are defined by a set of rules called an agreement.


Properties based on their own blockchain are very important for coins. By establishing its own protocol the coin achieves the highest level of independence and flexibility. The company or group that launched it can decide on aspects of the cryptocurrency such as consensus Mechanism fee or transaction mechanism.


The original cryptocurrency Bitcoin features legal currency as a unit of account store of value and medium of exchange. However, most of the coins that followed did not qualify as a currency and some even had the characteristics of tokens.


Some popular coins other than Bitcoin 


Ethereum;

XRP;

Bitcoin Cash;

Litecoin;

EOS.


What is a token


  • An action or gift that expresses affection or intent.
  • A piece of paper printed with a specific amount that can be exchanged for that value in a store.
  • A round metal or plastic disc is used in place of money in some machines.
  • Tokens are digital representations of assets in the cryptocurrency market. Assets represented by crypto tokens may embody utility tradable goods loyalty points voting rights etc.


  • The token is built on a blockchain platform; therefore it uses a predetermined protocol and has no say in the development of the network. Tokens are defined by smart contracts and additionally gain value through their use.
  • To better understand Tether is a known token that operates on the ERC20 standard. This way Tether is built on the Ethereum blockchain and can be sent to any Ethereum address.
  • Its main function as a token is as a practical encrypted digital asset in the project. On the blockchain, there are currently thousands of tokens in use. However, they can be divided into the following categories:
  • Utility Token - Grants access to blockchain-based services; in short, you will need some kind of utility token to perform operations on the altcoin network.
  • Trading tokens can be found such as Tether (USDT) Binance USD (BUSD) and many others that are usually backed by and pegged to fiat currencies. In this way, the tokens are not subject to the volatility that 
  • cryptocurrencies are notorious so they can be used as a medium of exchange and storage of wealth.

Security tokens are referred to as stocks and shares that have been converted into digital tokens on the blockchain. Holders of this token are entitled to a portion of the company in which they invest.

A non-Fungible Token - is a unique cryptographic token that exists on the blockchain and is used to digitally represent ownership of unique content. The token can be traded or exchanged but is not fungible.

Governance Tokens - Those who own such tokens can propose and vote for changes to blockchain projects and in doing so influence the direction of the project. Usually, these tokens are created as ERC20 and ERC721.

The coin is leveraging existing coins so it is subject to any uses and limitations of the network.


You can make your own cryptocurrency in half an hour via smart contracts. However, the ease and speed of building a token come with fees paid to the platform.


Here are a few popular tokens:


Tether;

UNUS SED LEO;

Chainlink;

Huobi Token;

Hedge Trade.


The difference between a coin and token

Different algorithm

Regarding algorithms there is a clear distinction between coins and tokens:


  • A coin is based on its own blockchain;
  • Tokens are based on smart contracts on top of existing blockchains.

Different utility

Aside from algorithms, another major difference between coins and tokens is that coins have monetary utility. Additionally, it can be used to support applications and smart contracts to validate transactions or for staking.


For example, Bitcoin is a coin that has only "money" utility. Another token with monetary utility is ether which is also used to fuel the smart contracts of the Ethereum network.


Tokens on the other hand are digital representations of assets tradable goods loyalty points etc.


Maker is a good example of this situation. The ERC-20 token is based on a smart contract on the Ethereum chain supporting and stabilizing the value of the DAI stablecoin. MKR is also used to pay transaction fees on the Maker system and provide holders with voting rights within the system Ongoing approval voting system.


SIDENOTE.ERC-20 is a technical standard for issuing and implementing tokens on the Ethereum blockchain.


Different fees system

While trading coins can be traded on their own there are almost no fees. However, when you trade a token you have to pay a fee for the network it is based on.


On the Ethereum platform, every operation requires a fee in the ether which is called gas. This gas is used to allocate EVM (Ethereum Virtual Machine) resources and execute instructions contained in smart contracts.


Vulnerability to 51% attacks

One of the main goals of the cryptocurrency revolution is to create a more secure financial system with no single point of failure. Hence the power of the network is the main difference between coins and tokens.


Coins can be vulnerable to a 51% attack especially in the early stages of the network just forming. However, since it is built on an existing network the token is unlikely to be the target of such an attack.


SIDENOTE. A 51% attack refers to an attack on the blockchain by miners (or groups of miners) with more than 50% of the network's mining power or computing power. A 51% attack is also known as a majority attack.




Coin vs token

By now the difference between coins and tokens should be clear. However, coins and tokens are not substitutes for each other but they serve different purposes. Each of them is better under the right circumstances.


Cryptocurrencies offer the highest degree of independence and flexibility. On the other hand, they are expensive to build and require large communities to support and adopt them. The best use of crypto coins is as a currency for storage and exchange of value.


If the project you are developing is focused on cryptocurrency meaning the main goal is to develop it and/or build a platform based on it or come up with a new financial system then tokens are the better choice.


On the other hand, crypto tokens are cheap and easy to develop. They require no maintenance but are dependent on the main network and have little flexibility. Tokens can serve as ancillary projects that bring funds to the main business or represent real assets in any way Move without physical contact.


As for investors you first need to know that both tokens and coins can be traded on exchanges as long as they are listed. The difference is in the use case. Coins generally have monetary utility. If you want to invest in one not to exchange it later but to use it then make sure some Vendors actually accept this cryptocurrency. On the other hand, tokens can still be used in the DApp they refer to even without other utilities.

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