What is the difference between Crypto tokens and coins?

Updated on 4 August, 2022 2:48 PM
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    Crypto, already a complex space, uses a lot of jargon that the layman might not understand. If you are new in the crypto world and want to start with the basics, you must know the difference between crypto coins and crypto tokens. These two terms are often used interchangeably, but they differ in meaning which will be detailed in this blog. So let’s begin with the fundamentals of crypto.

    What is a crypto coin?

    A crypto coin is developed on an independent blockchain network. It is used as a value store or medium of exchange. It is native to its blockchain. Coins can be mined through Proof-of-Work (PoW) consensus algorithm or earned through Proof-of-Stake (PoS) algorithm. PoW is a method of adding new blocks to a blockchain that generates hashes for different blocks. On the other hand, PoS works by selecting a node to be the validator of the next block in the chain using a pseudo-random election process.

    Examples of crypto coins are Litecoin (LTC), Ether (ETH), Bitcoin (BTC), Ripple (XRP), Bitcoin Cash (BCH), Cardano (ADA), etc. 

    What is a crypto token?

    A crypto token is regarded as a digital asset that is developed on an existing blockchain platform. It’s not native to any blockchain network. Organizations or crypto-related projects make crypto tokens on top of existing blockchains. Most crypto tokens are issued or minted on the Ethereum blockchain network and are known as ERC-20 tokens. They have a variety of functions, such as granting access to platform-specific features and services, representing physical objects, NFTs (Non-Fungible Tokens), etc.

    These tokens are designed to be used with Dapps (Decentralized Apps) and blockchain projects. 

    Examples of crypto tokens are Chainlink (LINK), Tether (USDT), Wrapped Bitcoin (WBTC), USD Coin (USDC), Uniswap (UNI), and Very Very Simple Finance (VVS), Cronos(CRO), Smooth Love Potions (SLP), etc.

    Difference between a crypto token and a crypto coin?

    By now, you must have understood what crypto coins and tokens are. To better understand these fundamental terms in cryptocurrency, let’s understand the differences between the two:

    • Crypto coins are developed on their own blockchain network, whereas crypto tokens are built on existing blockchains. 
    • Crypto coins are utilized for payments and as a store of value. Still, tokens have several use cases like asset-backed tokens, security tokens, tokenized money (Stablecoins), non-fungible tokens (NFTs), etc.
    • Tokens are comparatively easy to create as they are developed on an existing blockchain using automated tools and templates. On the other hand, creating a crypto coin requires much work as it is built on an entirely new blockchain network.
    • Owing to its ease of creation, crypto tokens can be created with nominal expenses, which is not valid for crypto coins.
    • Crypto coins are mined but not crypto tokens.
    • For the convenience of the layman, crypto tokens are comparable to vouchers and coupons, whereas crypto coins are comparable to cents and dollars. 

    Can crypto coins and crypto tokens be swapped?

    Tokens can be turned into coins if the project develops its own blockchain. For example, Tron (TRX) and Binance Coin (BNB) initially existed as tokens on the Ethereum blockchain. After migration to their own blockchains, they now exist as coins. 

    Several project teams launch testnets of their blockchains before releasing a publicly available cryptocurrency mainnet. For ease of understanding, the mainnet is a network where cryptocurrency transactions occur on a distributed ledger. Once a project team is ready to launch its mainnet, it usually conducts a coin swap/token swap. During this event, users can exchange digital tokens for digital coins that can be used on the new, standalone blockchain. In 2018, EOS, Tron, VeChain Thor, and several other projects completed this process. 

    Investors must note that coin swaps can be done manually or automatically. For example, several exchange platforms like Binance have a feature that automatically swaps digital tokens for coins. Investors who store funds in an external wallet might need to undergo a few manual steps before receiving new coins.

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