Everyone who has begun their cryptocurrency journey has probably interchanged the crypto terms token and coin several times. This is due to how comparable a coin and token are to a fundamental extent. These digital currencies both show worth and help traders process transactions. Also, both can be switched for each other – you can swap tokens for coins and vice versa.
It’s important to know these two’s basic knowledge and description, especially for newbies who have just started exploring the crypto world and are planning on investing in any crypto trading platform.
When it comes to difference, how coins and tokens differ comes down to utility. You can do specific things with coins but do not apply to tokens. In addition, some crypto markets accept coins as payment but not tokens.
This concept can be compared to traders and investors – all traders invest, but not all investors trade. Keep in mind that most cryptocurrency investors usually own both tokens and coins for the benefits that each provides.
To further understand the most important differences between coins and tokens, it’s essential to do some research. Hence, the next time you’re referring, you’re confident you’re referring to the right thing.
What is a Coin?
Since Bitcoin came out, it has already set the standard for what a coin should be. Since then, the number of coins has been rising throughout the years. Some specific qualities differ crypto coins from tokens, and some are comparable to real-world money.
A coin consists of processes and characteristics such as:
1. Coins operate on blockchain
A blockchain records all the transactions that every trader does, as long as it involves a native crypto coin.
For instance, when you pay a store through Ethereum payment, the record of the transaction is registered on the Ethereum blockchain. However, if the store gives you your ‘change’ through Bitcoin, the record of the transaction goes to the Bitcoin blockchain. Every transaction is secured by code and available for any member of the same network.
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2. Coins act as money
Bitcoin was made to change conventional money. The appeal of this goal inspired the birth of other coins such as Litecoin, NEO, and ETH.
With the growth of cryptocurrency, several marketplaces now accept crypto coins for purchasing, selling, or trading. These merchandise include the big names of corporations today, such as Microsoft, Tesla, and Amazon.
3. Coins can be mined
Cryptocurrency coins can be earned in two ways: The traditional mining on the Proof of Work system and the modern approach, Proof of Stake.
Coin hunters utilise this method to boost their earnings in the Proof of Work system. However, the process becomes difficult each day with fewer Bitcoins left to mine.
Meanwhile, the Proof of Stake method requires lighter energy consumption and is easier to do.
What is a Token?
Compared to coins, tokens do not have their blockchain. Instead, they utilise blockchains of other cryptocurrency coins such as Ethereum. Some of the most commonly seen tokens on Ethereum include BNT, Tether, BAT, and other different stablecoins like the USDC.
While crypto coin transactions are recorded in a blockchain, tokens rely on smart contracts. These are a collection of codes that handles trades or payments between users. Each blockchain uses a smart contract.
This process makes tokens different from coins because crypto coins do not change; only the account balances change. So when you transfer money from your bank to other people’s banks, your money doesn’t go anywhere. The bank handles the balances of both accounts and stores the fees – this is also what happens in a blockchain – the balance in your wallet changes, and the transaction takes note of that.
In Conclusion: How are the two different?
Another difference to take note of between coins and tokens is what they represent. Crypto coins are digital versions of money, while tokens stand for assets or deeds. Also, you can purchase tokens with coins, but some tokens only carry more value than any of them.
You can simply think of tokens as representing what you own, while coin refers to what you can own.
The difference between coins and tokens isn’t that big, but it can be a major headache if overlooked. One quick way to decide which one you should use is to determine what you’re buying. Remember that if you’re buying a product, use coins, but if it’s a service, there are usually tokens that you can use.
Understanding the difference between these two important crypto terms can help you in the long run. So, learn to distinguish between coins and tokens before investing or trading on any crypto platform!