What is the Difference Between A Cryptocurrency Coin and A Token

Crypto has unlocked new possibilities, but it also complicates things with confusing terms. Among the most misunderstood ones are crypto coins and crypto tokens.

This guide will help you understand the terminology. We’ll explore what their differences are and provide examples to illustrate the concepts.

What is A Coin?

At its core, coins are digital assets native to their own blockchain. Coins are often compared to physical money but exist purely in a digital environment. They are built to serve as a medium of exchange. Thus, you can use them for purchases and transactions, just like any other currency. Besides, you could buy coins, hoping their price will rise and bring some profit.

The creation process is what distinguishes coins from tokens. Coins are obtained by either mining with Proof of Work or staking via Proof of Stake. In PoW, miners get coins when they find a block and help secure the network. Meanwhile, in PoS, validators contribute to the network by staking their crypto.

What is a Token?

The main difference between a crypto coin and a crypto token is that coins have their own blockchains, while tokens rely on existing ones. Through minting, a smart contract on the blockchain generates the tokens and outlines the rules for their supply and usage.

Tokens can exist alongside a blockchain's native coin and be used on multiple blockchains. Plus, they can serve various purposes, which is why there are different types:

• Utility Tokens allow users to play games, access decentralized services, and sometimes give tips.
• Governance Tokens let users vote on suggested changes to the protocol.
• Security Tokens act as digital copies of real-world assets like stocks or bonds.
• NFT prove ownership of things like art or music through a special marker on the blockchain.

Coin vs Token: Key Differences

Figuring out whether an asset is a coin or a token can give you insight into its purpose within the ecosystem and support your investment research. We’ve already established the core distinction, but there are other factors that set them apart.

• Functionality: Coins are mainly used for transactions, and tokens can be employed for governance, access to services, staking, and more.
• Creation: Tokens are easier to create than coins as they can use specific existing models like Ethereum’s ERC-20 standard. Issuing a coin, however, requires developing a new blockchain that is quite complex and resource-intensive.
• Technical Role: A coin is fundamental for blockchain operation, while a token is used for applications or features built on top of it.
• Reliance: Coins are tied to blockchain performance, while a token's success might hinge on the popularity of specific applications and projects.

Overview of Different Cryptocurrencies

Trying to divide between the two often confuses newcomers, especially when having an attempt to categorize assets. So, let’s go over the most common cryptocurrencies to make things clear.

Bitcoin

Bitcoin is a coin built on its own blockchain, often seen as the first cryptocurrency. It functions as both a store of value and a global transfer option.

BTC is what initially started the crypto movement, and it has stayed on top of the game since. Undeniably, it’s the most well-known crypto, leading by market cap.

Ethereum

This one is more interesting. Ethereum itself is a blockchain, and ETH, its native asset, is a coin. ETH is used to power transactions and smart contracts within the network.

Also, the Ethereum platform also hosts a variety of tokens serving distinct functions within their projects. They range from ERC-20 utility tokens to ERC-721 NFTs, proving to be versatile.

Solana

Solana is one of the most popular blockchains, with SOL as its native token. People frequently associate it with Ethereum because of its comparable functions and uses. Its low fees and rapid processing speed make it a preferred option for dApps and NFTs. Technically, both ETH and SOL are coins, but Solana's official documentation refers to SOL as a token, reflecting its use case beyond transactions

SOL is used to pay transaction fees and staking within its network. The platform also backs multiple tokens, helping to expand various projects within its ecosystem.

XRP

XRP is the native token of the XRP Ledger. While XRP is used by Ripple for international transactions, it isn't owned by it. Although XRP operates on its own blockchain, it is referred to as a token because it was created for a specific purpose - to simplify cross-border payments and support liquidity management.

XRP uses the RippleNet ledger to offer liquidity and cut transaction costs when converting between various fiat currencies. The innovative consensus mechanism makes it faster, more affordable than BTC, and lowers energy demand.

Dogecoin

Dogecoin is a cryptocurrency coin that operates on its own blockchain. Originally seen as a fun take on Bitcoin, it slowly built a strong following.

DOGE is popular for tipping, donations, and as a payment method. Despite its meme coin origins, it has demonstrated resilience, gained significant popularity, and has performed well this year.

Now you know how to distinguish coins from tokens. That will help you navigate the market and pick the right type of asset for your needs.

We hope this guide is useful. Submit your questions and feedback below!