Coins versus tokens — just two sides of the same crypto coins? Not quite — learn the difference between these two terms.
One of crypto's fundamental questions no one is talking about:
Why is it Dogecoin and not Dogetoken?
No one is honest enough to admit they don't know the difference. Probably not a coin-cidence.
Ok, that's enough silly jokes. The difference between coins and tokens is probably clear to many. But if you're reading this article, you may not know it. So we'll clear it up for you:
- What are coins and what are tokens?
- The difference between coins and tokens.
- Examples of coins and tokens.
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What Is a Coin?
Coins are cryptocurrencies belonging to a blockchain. They are independent of other chains and cannot be used on other chains in their native form. The use cases of coins are:
- Medium of exchange
- Store of value
- Unit of account
Read also: Can Bitcoin become money?
A coin is produced through mining, meaning (in its easiest form) computers solve complex math puzzles and validate transactions to produce coins. The first computer to solve the problem gets rewarded with newly minted coins. This ensures that the network is secure and decentralized.
Some of the characteristics and benefits of coins are:
- Decentralization: Coins are not controlled by any central authority or intermediary. They are governed by the rules of their protocol and the consensus of their community. This gives users more freedom and privacy over their transactions and funds.
- Security: Coins are protected by cryptography and encryption. They are resistant to hacking, censorship and fraud. Users can trust that their coins are safe and authentic, without relying on third parties.
- Scarcity: Most coins have a limited supply that is predetermined by their algorithm. This creates a deflationary effect that increases its value over time. For example, Bitcoin has a total supply of 21 million and Ethereum is deflationary. However, not all coins are scarce, such as Dogecoin, which has no cap on its supply.
Coins are like digital commodities. Read our explainer about digital commodities to understand how they work.
Coins can vary based on how they are created, their value and the function they fulfill. Here are some examples of coin types:
- Native Coins: These are coins that run on their own blockchain and serve as the main currency of the network. Examples include Bitcoin (BTC), Ethereum (ETH) and Litecoin (LTC).
- Forked Coins: These are coins that are derived from an existing blockchain by splitting or branching off from it. Examples include Bitcoin Cash (BCH), Bitcoin SV (BSV) and Ethereum Classic (ETC).
- Wrapped Coins: These are coins that represent another asset on a different blockchain. They allow users to access cross-chain functionality and liquidity. Examples include Wrapped Bitcoin (WBTC), Wrapped Ether (WETH).
- Stablecoins: These are coins that are pegged to the value of another asset, such as fiat currency or gold. They aim to provide price stability and reduce volatility. Examples include Tether (USDT), USD Coin (USDC).
What Is a Token?
Tokens sit on top of an existing blockchain and depend on it for their operation. A token can represent various things, such as utility, governance rights, shares of ownership or others.
Tokens are usually “pre-mined,” meaning developers use a smart contract to issue new tokens and distribute them to users. Some of the characteristics and benefits of tokens are:
- Utility: Tokens are necessary to use the decentralized applications (dApps) they are built for. Users can use tokens to pay for fees, perform actions, or receive benefits.
- Governance: Tokens can give users a voice in the decision-making process of the blockchain or dApp. Users can use tokens to vote on proposals, changes, or upgrades.
- Interoperability: Tokens can enable cross-chain communication and compatibility. Unlike coins, tokens can be supported by different blockchains.
Tokens are like digital currency for the protocol offering them. They can grant users access, rights or rewards.
There are different types of tokens based on their function, value proposition, use cases, etc. Here are some examples of token types:
- Utility Tokens: They provide access to a service or function on the blockchain or dApp. Examples include Uniswap (UNI) and Chainlink (LINK).
- Governance Tokens: They give users a say in the governance of the blockchain or dApp. Examples include Maker (MKR), Compound (COMP), Aave (AAVE), and most other tokens.
- Security Tokens: They represent a share of ownership or a claim on an asset or income stream. They are subject to securities regulations and compliance. Examples include Polymath (POLY).
- Non-fungible Tokens (NFTs): They represent unique and indivisible digital items, such as art and collectibles. They are not interchangeable and have varying values. Examples include CryptoPunks and Bored Apes.
Coins vs Tokens: The Difference
Now that we know what coins and tokens are, let's see how they differ from each other. Here is a feature-by-feature comparison of coins and tokens:
Coins are more suitable for general transactions and value preservation, while tokens are more suitable for specific purposes and value creation. However, this does not mean that coins and tokens are mutually exclusive or incompatible. In fact, they can work together and complement each other in the crypto ecosystem. For example:
- Users can use coins to buy tokens or use tokens to pay for fees on coin networks.
- Users can wrap coins into tokens or unwrap tokens into coins to access cross-chain functionality and liquidity.
- Users can stake coins or tokens to earn rewards or participate in governance.
- Users can swap coins or tokens with each other using decentralized exchanges (DEXs) or automated market makers (AMMs).
Popular Coins and Tokens
Let's talk about some popular crypto coins and tokens.
Popular Crypto Coins
Bitcoin (BTC):
Bitcoin was the first cryptocurrency and thus the first coin. It has risen to popularity, thanks to it being the most secure and decentralized network, with thousands of nodes and miners around the world.
Read also: Is Bitcoin the next world reserve currency?
Ethereum (ETH):
Ether is the coin of the Ethereum blockchain. It fulfills the same function as a medium of exchange and unit of account as Bitcoin. Unlike Bitcoin, Ethereum allows for smart contract functionality and the development of decentralized applications (DApps).
Read also: Everything you need to know about the Shanghai Upgrade.
Binance Coin (BNB):
Binance Coin can be used to pay for discounted trading fees, participate in token sales, and access various services and functions in the Binance ecosystem. It also has a limited supply that is periodically burned, creating a deflationary effect that increases its value over time.
Read also: Binance Marketplace: the new crypto super app.
Dogecoin (DOGE):
Doge is based on the image of a Shiba Inu dog and has a loyal and enthusiastic fan base. It is often used for tipping, donating or expressing support on social media platforms. It is also famous for Elon Musk being its unofficial champion and most famous supporter.
Read also: Elon changes Twitter logo to Doge
Popular Crypto Tokens
Tether (USDT):
Tether is the biggest stablecoin, meaning its value is bound to the value of the dollar. It aims to provide price stability and reduce volatility in the crypto market. It is often used as a medium of exchange or a store of value between different cryptocurrencies or platforms.
Read also: Why do stablecoins depeg?
Uniswap (UNI):
UNI is the governance token of the Uniswap protocol. Uniswap is a decentralized exchanged for swapping tokens between different EVM-compatible blockchains.
Read also: Uniswap vs PancakeSwap
Arbitrum (ARB):
ARB is the governance token of Arbitrum, a layer-two blockchain for Ethereum. Arbitrum was created by the Arbitrum Foundation and launched with one of the biggest airdrops in the history of cryptocurrency.
Read also: Arbitrum vs Optimism: The Ultimate Comparison
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