Any trader who has spent more than 5 minutes in the cryptosphere must have come across the terms like tokens, cryptocurrency, altcoins, etc. But what do these all mean? Are they the same things or do they have different meanings?
The truth is that coins and tokens are different things, although they are often mistakenly used interchangeably.
Let’s begin by defining what a coin is, which is the same as a cryptocurrency.
What Is A Coin?
Coins are things like Bitcoin, Litecoin, and Namecoin. The less popular variation of coins is sometimes referred to as altcoins, as they compete with Bitcoin and the other established players in the space of cryptocurrencies.
Coins have the following properties:
- Fungible: One unit is the same as the other
- Divisible: Coins can be divided into smaller units
- Acceptable: Accepted as a medium of exchange
- Limited Supply: The coin is not unlimited and capped at a certain level
- Uniform: All versions of the coin have the same value
- Portable: Can be exchanged and carried around with you
- Durable: Can be used numerous times without degrading
Additionally, there are some coins such as Monero that were not made with Bitcoin’s source code, but they are referred to as coins as they use their own independent blockchains.
These coins are also sometimes named crypto coins or cryptocurrencies, but these actually mean the same thing.
To make it simpler to understand, a cryptocurrency can be considered to be a parent category. Under that category, you then have altcoins, crypto coins, and coins as another subcategory.
But blockchains like Ethereum and Ripple all fall under the same category of coins as they share similarities of currencies, but at the same time, they are not used solely as a form of money. This is why the term cryptocurrency becomes debatable.
However, it’s easy to tell the difference between tokens for coins or cryptocurrencies.
What Is A token?
A token is a kind of cryptocurrency without actually being used as a currency. Tokens are issued as part of a separate blockchain. Usually, tokens represent the utility of an asset, or can sometimes work as both.
One example of a token is the Golem project that uses GNT tokens. Golem or GNT tokens get hosted on Ethereum’s blockchain as the primary fuel for the Ethereum blockchain.
And if you want to use a Golem Decentralized application, GNT tokens are required as without those tokens you will not be able to use the application.
Coins Vs Tokens Main Differences Combined
As you can see from the above, a token is a secondary asset for a certain application on the blockchain that also has market value, but they are not as simple to understand as say Bitcoin or Ethereum.
Also, coins like Ethereum can work by themselves, but tokens like GNT cannot operate without also using the Ethereum blockchain.
Another example to consider is CIVIC tokens that also rest on the Ethereum blockchain. These two examples may help you understand tokens better.
So you see, a token is a secondary asset for a particular application on a blockchain ecosystem which also has a market value but isn’t a currency as straightforward as Bitcoin or Litecoin.
Also, coins like Ethereum that can exist independently, but tokens like GNT can’t exist without the Ethereum infrastructure.