Mar 03, 2023
Read 8 min.
Today, both novices and experts in the cryptocurrency field often use coins and tokens as synonymous terms. However, there is a big difference between tokens and coins and that’s what we need to figure out. But why is this so important? It is one thing for members of the cryptocurrency community to understand the difference between a crypto token and Bitcoin, but it is another matter for newcomers to be confused with these terms at first.
Bitcoin was the first cryptocurrency that runs on its own blockchain and is used as a means of payment between participants. Therefore, Bitcoin has become the default standard and is called a crypto coin. To help understand this, let’s review some basic definitions.
A crypto coin is a digital currency that is created using cryptography methods and has its own blockchain where transactions take place. As mentioned above, the first and most well-known crypto coin is Bitcoin, which is transmitted within its blockchain.
One crypto coin cannot be directly transferred from its blockchain to another. For instance, you cannot transfer Bitcoin to an Ethereum address. This is because Ethereum has its own blockchain and unique addresses. Let’s highlight the main points that define crypto coins:
Similarly, it is not possible to transfer cryptocurrency from one blockchain to another. But today, work is already underway to combine blockchains, and cross-chain technology is being used very actively. Such platforms significantly reduce the speed of transactions.
Finally, the second basic concept. A crypto token is a digital currency created within an existing blockchain that performs the same functions as a coin. Crypto tokens built on Ethereum are the most common. However, the functionality of a crypto token is extended and it can be a digital certificate that guarantees a company’s commitment to the asset owner. So let’s highlight the main characteristics of the crypto token:
In terms of bandwidth, the situation in the Ethereum network today does not allow many projects to fully carry out their activities because as a result of the growth of transactions, fees have risen strongly.
It could be said that crypto tokens are digital assets that become a unique extension of smart contract platforms such as Ethereum. The functionality of crypto tokens depends entirely on the capabilities that the developers have built into the smart contracts. Now smart contracts enable secure and confidential transactions without external parties. In addition, such transactions are traceable and transparent.
Also, this asset meets a certain token standard to ensure compatibility with wallets and services on exchanges. The most common token standard is ERC-20.
Today crypto tokens can be a payment instrument as well as an asset that allows you to get a part of a project. It all depends on the types of tokens. For instance, a utility token gives the user access to a company’s services/products after a certain time. Utility tokens are issued centrally and are needed to develop the project’s ecosystem. Typically, utility tokens are distributed during an ICO.
You can better understand the use of this asset by analogy with store gift certificates. They cannot be used, for example, as tickets to a concert or a football match. The certificate can be redeemed at a specific location and for a certain purpose — to get something from the store’s assortment.
But often the entire worth of a crypto token is only the speculative component and the opportunity to make money from the exchange rate. By the way, crypto tokens cannot be directly transferred from one blockchain to another.
So let’s summarize and highlight the key differences between these assets:
So, we consider the main difference between crypto coins and tokens. Understanding the distinction between these digital assets is a very important point for any investor or person who wants to learn more about blockchain networks or smart contracts.
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