EXPLORING THE DIFFERENCE BETWEEN CRYPTO COINS AND CRYPTO TOKENS
At some point in their bitcoin adventure, almost everyone has confused a token with a coin.
Have you ever wonder what’s the difference between coin and token?
Is coin and token similar?
On a fundamental level, a coin and a token are very similar. They each have worth and therefore the ability to execute payments.
The primary difference between coin and token is their utility.. Tokens allow you to accomplish things that coins do not. However, some marketplaces will only accept coins rather than tokens.
Let’s go over some of the key Difference Between Coin and Token so you know what you’re talking about the next time you make a mention.
What is a Crypto Coin?
Coins are based on blockchains, which means that each blockchain records all transactions involving its own cryptocurrency.
For example, All Ether transactions are handled via the Ethereum blockchain. The native token of the Ethereum blockchain is ether. Every transaction is encrypted, and only members of the network may see it. The Ethereum blockchain is used to send Ether, whereas the Bitcoin blockchain is used for Bitcoin transactions.
Within the network, one user can send coins to another — Bitcoin to Bitcoin, Litecoin to Litecoin — but direct transfers between the two coin networks are not possible. This means that a person cannot sell one Bitcoin and purchase 50 Litecoins through the Bitcoin blockchain network.
This is where the exchanges come in. They connect buyers and sellers on each coin’s network.. The transactions are recorded on the individual blockchains as one user exchanges Bitcoin for Litecoin.
The exchange is simply an intermediary that keeps track of accounts. This is an important characteristic of coins since it keeps their data ‘tied’ to their original blockchain infrastructure.
◼ Cryptocurrency depends on a blockchain, a decentralized ledger, for transaction security. This sets them apart from the centralized databases used by most financial institutions to track transactions.
◼ The purpose of cryptocurrency currencies is to be used as money. Coins can be used to pay for products and services, saved for later use, and divided into fractions of the total amount.
◼ Coins typically develop their own infrastructure, with control over how they are created, how they are protected from assaults, how their supply is controlled, how transactions are processed or recorded, and who they reward.
What is a Crypto Token?
Tokens are similar to cryptocurrencies in that they are a form of currency that is stored on a blockchain and may be transferred from one account to another. Their behavior is affected by smart contract implementations. These smart contracts keep track of the number of token units transferred from one account to another.
◼ Tokens do not have their own blockchain or distributed ledger. Rather, they depend on other crypto currencies’ blockchains, such as Ethereum. BAT, BNT, Tether, and numerous stable coins like the USDC are some of the most popular tokens on Ethereum.
◼ A token is physically moved from one location to another when it is exchanged. The greatest example to understand this is non-fungible tokens or NFTs. They act as proof of ownership. As a result, the ownership transfer is done manually.
◼ Tokens are digital representations of assets. These ‘tokens’ can be kept for their face value, sold, or staked’ to generate interest. Tether, Uniswap, Chainlink, and Polygon are some of the most widely used tokens.
◼ Tokens are used in decentralized applications (DApps) that are typically developed on top of an existing blockchain. Tokens benefit from an existing blockchain without requiring their own infrastructure.
◼ Tokens can be tied to off-chain assets in addition to these use cases (exchange of value, part of an application). They can also be used for fundraising, pre-ordering, or investing, as well as for creating an ecosystem or community.
How Are Crypto Tokens Different From Crypto Coins?
Although the difference Between Coin and Token is minor, it can generate a lot of confusion if it’s neglected. Paying attention to what you’re buying is one simple approach to figuring out which one you should utilize. If it’s a product, coins are almost always required. Utility tokens are frequently available when it comes to services.
Surprisingly, we spend tokens in a similar manner to how we spend dollars. When you pay cash, your money physically travels from your hand to the hands of another person. However, we did explain that coins are the only form of money, and they do not move. Is this how financial marketeers play with our senses?
That’s something to consider the next time you’re feeling thoughtful.
Join LBM Solutions if you’re interested in investing in cryptocurrencies but aren’t sure where to begin.