Coin vs Token – The difference explained here
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If you are new to this space and you are wondering what the difference is between a coin and a token is, then you are at the right place.
I myself wondered what the difference was between a token and a coin in the beginning. Especially as they were used interchangeably, and sometimes even incorrectly.
In this article I will focus on explaining the difference between a coin and token, I will also give you some insight into each type of cryptocurrency.
I will then give you some examples of different coins and tokens. Additionally, I will give you an overview of different types of tokens that you might have read about before, like; security token, utility token, equity tokens, etc.
As cryptocurrencies are somewhat new and still very much a developing market, there are yet not always agreed definitions of everything. That means that certain definitions could be described differently, and I want you to keep that in mind.
What is a Coin?
This is the main definition of a coin. Fairly easy to grasp? Unfortunately to make it a bit more complex. Sometimes coins can be defined as tokens. At least in the case of Ethereum, and its native cryptocurrency Ether.
Ether is considered a token, but it is also the main and native cryptocurrency of the Ethereum blockchain.
Whereas tokens can have a greater spectrum of use cases.
Examples of Coins
To give you a better idea of the what a coin is compared to a token I will list some coins here that you might have heard about.
Bitcoin is probably the most famous coin. It is the only cryptocurrency that exist on the blockchain with the same name (Bitcoin).
Other examples of coins are; Ethereum (Ether) and Monero.
What is a Token?
To define token you can refer to any cryptocurrency that is created on another blockchain. Most well known are all the Ethereum-based tokens. The ERC20 tokens specifically.
There are great benefits to tokens as they can often be created without huge resources or years of experience coding your own blockchain. And they can draw on the strengths of the blockchain it is built on.
There are thousands of tokens that have been created on the Ethereum blockchain. These are not the main tokens, because that is Ether (ETH).
But you might have remember me saying that Ether is also a token? Which is correct. Ether (ETH) is commonly referred to as a token rather than a coin by the Ethereum team.
This might sound a bit confusing, and that is because the definitions of tokens and coins is still evolving. But to help you clear it all a bit more, you could see it as:
- A coin has its own blockchain – BTC on Bitcoin, ETH on Ethereum, XMR on Monero
- A token can both be referred to a cryptocurrency that is built on top of another blockchain – ERC20 tokens such as BAT, USDT, REQ, DAI, etc are all tokens created on Ethereum. But a token can also be used to define the type of cryptocurrency, where Ether is more seen as a token rather than a coin.
Examples of Tokens
I mentioned a few tokens above already, but there are tokens existing on many popular blockchain platforms. Ethereum being the main examples that has the most tokens built on its blockchain.
What is the purpose of a coin or token?
The purpose of any cryptocurrency can differ quite a lot. So it is hard to define just one purpose of a coin vs token.
On a high-level you can say that all cryptocurrencies serve a specific purpose. Either it can be purely payment/transactional, Bitcoin and Nano could fall into this category.
Or it could be a type of utility token, for example to pay for transactions fees, smart contracts, or to pay for certain services within an application.
Examples of how a token, or cryptocurrency could be used for:
- To pay for fees – examples are Gas (on Neo blockchain), Ether (on Ethereum blockchain), VTHO (on VeChain blockchain).
- A type of asset token – for example, the different stablecoins, like USDT, USDC, PAX
- Pay publishers and browsers for using the Brave browser with BAT (Basic Attention Token)
- Pay for storage solutions with Sia
Other examples of use cases for tokens could be governance and voting rights, access rights, and the list goes on.
Different types of tokens – Utility, Security, Equity
Another interesting definition that I think we could spend some time on, are the different types of tokens that exist today.
You could define several types of token categories but I want to focus on the three of the main types of tokens; Utility tokens, Security tokens and Equity tokens
These tokens are define to serve a specific utility purpose. They can be used to pay for fees, loyalty/membership points, earnings, usage, etc.
Broadly they fill an important purpose on the blockchain, or dApp that they exist on. Often without them the application or blockchain could’t function.
Utility tokens or other types of tokens that are not securities are not regulated in the same way.
Another type of token is security tokens/cryptocurrencies. The key defining aspect is that these tokens are considered securities by the SEC.
Other types of securities are stocks, bonds, options and warrants.
That means they are regulated in a more thorough way than non-securities.
A security token would give its investor legal rights to assets that give them the right to receive parts of dividends or profits.
You can commonly define a token as a security if it passes (by answering yes to all the questions) the Howey test created by the SEC:
- It is an investment of money
- There is an expectation of profits from the investment
- The investment of money is in a common enterprise
- Any profit comes from the efforts of a promoter or third party
Another type of token that is becoming more popular is equity tokens. These types of tokens represent legal ownership like stocks to the asset they have invested in.
That could be; tokenised real-estate, tokenised ventures, tokenised stocks, etc.
Equity tokens are considered to be securities, and therefore are regulated as such.
Equity tokens are a sub-branch of security tokens. And thus follow much of the same patterns.
Conclusion – Coins vs Tokens
Cryptocurrencies and their definitions are continuously growing and evolving.
Where other businesses can more easily build their own new decentralised applications.
We have then seen the rise of securities and other types of equity assets being tokenised.
All these changes combined with a maturity happening with blockchains and cryptocurrencies means that we all get slightly better at defining what a cryptocurrency is, what a tokens is and what a coin is.
I am sure that in a few years the definitions of what a coin or token is might need an update or tweak in this article. And isn’t that one of the more intruging parts of cryptocurrencies?
We are right now in the middle, or the beginning of a new type of technological and financial evolution.
I hope you liked this article, and that it was educational. If you have any further questions or suggestions then let me know in the comment section.
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Hello and welcome to Go Cryptowise.
My name is Per Englund and I’m a long-term fan and investor of Bitcoin and other cryptocurrencies. I’ve been around the space for a good few years, learning how it all works and to be a part of this engaging community.
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