Crypto Coin vs. Token: The Two Faces of Blockchain-Based Assets

8 min read

What is a Coin?

 A crypto coin is a type of digital currency that has its own unique blockchain network with no physical, real-world equivalent. Think of it as a native currency for that blockchain. This means that the coin’s creators have complete control over every aspect of it, such as how transactions are processed, the fees associated with transactions, and how the network reaches consensus.

Creating a blockchain network from scratch takes time and expertise, so launching a coin takes work. This means that coins are less numerous than other forms of cryptocurrency, like tokens.

The most well-known example of a coin is Bitcoin (BTC), the first cryptocurrency ever created. Bitcoin has its own blockchain network and is used to pay transaction fees on that network. Other coins that came after Bitcoin are often referred to as “altcoins” or alternative coins, and they also have their own independent networks.

Here are six examples of coins in the world of cryptocurrency:

  • ethereumEthereum$3,504.78-0.04%
  • binancecoinBNB$583.29-0.49%
  • solanaSolana$134.581.56%
  • cardanoCardano$0.373784-3.24%
  • avalanche-2Avalanche$26.23-5.48%
  • polkadotPolkadot$5.57-1.98%

Crypto Coins Key Features

Here are some key features of crypto coins:

  1. Independent blockchain: All crypto coins run on their own blockchain, allowing for unique technical solutions and creating new functions. This enhances the security and efficiency of the underlying blockchain technology, making the coins more valuable.
  2. Function as digital money: Coins can act as digital money, possessing the attributes of traditional currencies, including security, scarcity, durability, portability, and a store of value. Some crypto coins have already been accepted as a medium of exchange by various companies, including Microsoft, PayPal, Starbucks, and Virgin Airlines.
  3. Can be mined: Most crypto coins are created by a process called mining. The network participants who validate transactions are rewarded with freshly minted coins, while users making transactions on the network pay a network fee, which is used to pay for rewards. Different transaction verification mechanisms exist, including proof of work (PoW) and proof of stake (PoS), the most known and used.

What is a Token?

A crypto token is a digital representation of an asset, utility, loyalty point, voting rights, or more on the blockchain platform. Tokens are created on top of existing networks and are not mined like coins. Instead, they are minted and depend on the conditions the issuing project sets. 

Crypto tokens are digital units that act as transactional units on blockchains, and they are created using standard templates, like that of the Ethereum network.

The concept of smart contracts is used to process and manage various transactions on blockchains. Tokens can be classified as utility, transaction, security, non-fungible, or governance tokens. They can be used to raise funds, provide access to specific services, represent coins on a different network, or follow the price of an underlying asset. For example, a crypto token can represent customer loyalty points or entitlements to view content on a video-sharing blockchain.

Crypto tokens have various uses, including representing a stake in a cryptocurrency company or trading and purchasing goods and services. 

Unlike coins, tokens leverage existing coins, and their purpose and limitations are subject to the network on which they are built. 

Here are six examples of tokens in the world of cryptocurrency:

  • tetherTether$1.000.03%
  • usd-coinUSDC$1.000.00%
  • daiDai$1.000.07%

How a Crypto Token is Created?

A crypto token is created on an existing blockchain network, such as Ethereum, Binance Smart Chain, or Tron. Tokens can be generated using various tools and platforms, and the process of creating a token can range from straightforward to more complex.

One of the easiest ways to create a token is to use a ready-made solution for token generation. This type of platform does not require any coding skills and typically allows users to create their tokens in just a few steps, similar to creating a website with a website builder.

However, if you want to create a token with advanced features, you must deploy a smart contract. Smart contracts are self-executed digital contracts that run on a blockchain and have terms and conditions written into code. A smart contract is the backbone of most token creation processes, as it sets the rules for how the token operates and what it can do.

To create a token with a smart contract, you will need to have some technical skills and knowledge of programming languages like Solidity. You can write your smart contract code from scratch or use pre-existing templates on platforms like Github.

Once the smart contract is created, it can be deployed on a blockchain, and the token can be minted. The smart contract defines the number of tokens that can be minted, and this number is usually fixed.

After the tokens are minted, they can be distributed and traded among users. 

Crypto Tokens Purpose

Startups frequently employ crypto tokens in the industry to secure funding. This is typically accomplished through an initial coin offering (ICO), in which tokens are sold to investors. Once the project is launched, these tokens are utilized as a currency and grant users access to various functionalities.

Crypto Tokens Types

Tokens can be categorized into four types: security tokens, equity tokens, utility tokens, and payment tokens. Each type of token has different characteristics and uses:

  • Security Tokens: Security tokens represent traditional security in digital form. These tokens are sold through a public offering called a security token offering (STO). Holders of security tokens do not have ownership rights but have other rights attached to them. The U.S. Securities and Exchange Commission regulates security tokens. The “Howey Test” helps to determine if a token falls under the security token category.
  • Equity Tokens: Equity tokens are a subset of security tokens and function like traditional stock assets. Holders of equity tokens have ownership in the company and are entitled to a share of its profits and a right to vote on its major decisions. Equity tokens are issued through an equity token offering (ETO) process.
  • Utility Tokens: Utility tokens provide access to a specific service or application of a blockchain-based project. They offer additional benefits, discounts, or rewards to token holders. Genuine utility tokens do not expect profit; otherwise, they become a security and utility token hybrid. Utility tokens are commonly issued through an initial coin offering (ICO).
  • Payment Tokens: Payment tokens are meant solely to provide a means of payment and do not interact with blockchain-based applications in any unique way.

Crypto Tokens Standards

Token standards are an essential part of the cryptocurrency world. They provide a framework for creating tokens, which allows developers to build new projects quickly and efficiently. In this article, we will explore the most common Ethereum-based token standards and their use cases:

ERC-20

Fungible Tokens ERC-20 is the most widely used token standard for Ethereum-based projects. It’s used for creating fungible tokens, meaning that each token is exactly the same as all the others, making them interchangeable. This standard is often used for tokens that represent a currency or are used for payments, staking, and voting.

One example of an ERC-20 token is Chainlink (LINK). It’s a token built on the Ethereum network and serves as a currency for paying for Chainlink network operations. Each LINK token is always equal in value to any other issued LINK token.

ERC-721

Non-Fungible Tokens (NFTs) ERC-721 is a standard for non-fungible tokens. NFTs are unique and cannot be exchanged for other tokens of the same type. These tokens are perfect for creating digital art, collectibles, access keys, or in-game items. NFTs have unique properties that allow them to be linked to an image stored on an external server, which makes it possible for a token to have a visual representation.

ERC-1155 

Multiple Token Types ERC-1155 is a token standard that allows developers to create multiple token types, including fungible, non-fungible, and semi-fungible tokens or other configurations. This standard is more efficient than creating two separate contracts with ERC-20 and ERC-721 standards. One smart contract can be created for both tokens, making it easier for developers to manage multiple token types.

Crypto Coins vs. Tokens: Key Differences

CriteriaCrypto CoinsCrypto Tokens
Type of AssetCurrencyAsset or Utility
BlockchainHas its own blockchainBuilt on top of an existing blockchain
ConsensusGenerally, proof of work or stakeDepends on the blockchain network it is built upon
PurposeAct as a medium of exchange or store of valueGrant access to a blockchain-based service or represent an asset
Mining/Validation ProcessCoins are mined through a consensus algorithmTokens are minted and not mined
DevelopmentDevelopers have full control over the development of the coin and its networkToken holders do not have a say in the development of the network, but the token can gain value through its purpose
Token StandardN/ACan follow different standards such as ERC-20 or ERC-721
ExamplesBitcoin, Ethereum, LitecoinTether, Binance USD, Chainlink

Key Takeaways

  • A crypto coin is a digital currency that has its own blockchain network, while a crypto token is a digital representation of an asset, utility, loyalty point, voting rights, or more on the blockchain platform.
  • Coins are less numerous than tokens and are used as digital money, possessing the attributes of traditional currencies.
  • Coins can be mined, while tokens are minted and depend on the conditions the issuing project sets.
  • Tokens can be categorized into four types: security tokens, equity tokens, utility tokens, and payment tokens.
  • Tokens can be created on an existing blockchain network and can be generated using various tools and platforms. Creating a token with advanced features requires deploying a smart contract.
  • Startups frequently employ crypto tokens in the industry to secure funding, and tokens are also used for trading and purchasing goods and services.
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