Are you confused between tokens and coins? I certainly was and decided to understand the difference between crypto tokens and crypto coins. In this quick write up, I will explain what those differences are and why it is important to know which one is which.
What is a Crypto Coin?
A crypto coin, just as it sounds, is a cryptocurrency that was created as a unit of account. Crypto coins were created to act as money, a form of payment, and a store of value. Coins often are issued on their native blockchains, but few have been issued without a native blockchain as well with the sole purpose of acting like money. Some examples of cryptocurrencies that are coins are Bitcoin (BTC), Litecoin (LTC), Ethereum (ETH), and Monero (XMR) issued on their blockchain and Labor Hour (LH) as an example of crypto coins issued as an ER20 coin on the Ethereum blockchain.
The most important fact to consider is the fact that Cryptocurrencies that are classified as Coins have no utility other than being a unit of the account itself.
What is a Crypto Token?
A crypto token has the same function as a crypto coin by acting as digital money but also possesses other functionalities and/or utility. Tokens are derivates of a primary blockchain, and with their function (business plan behind it), they deliver additional value to investors other than the price increase of the coin itself. An enterprise behind the token, for lack of a better word.
Examples of Crypto tokens are many of the Altcoins in the market today. Most are issued on the Ethereum ER20 blockchain, such as Basic Attention Token (BAT) powering products as the Brave Browser and Lbry Credits (LBC) powering few decentralized video platforms Lbry.tv and Odysee.com. But they are also issued on other blockchains as well such as Waves, Wax, and others.
Fun Fact: According to Investopedia “there are more than 2,000 cryptocurrencies tokens in existence as of January 2020.” That’s is quite a lot!
Why should I know the difference between Crypto Token and Crypto Coins?
There are several reasons why you should know the difference between a token and a coin.
The first is regulation. Regulation often lags behind technological advances, and for now, lines are still blurred.
The second is the functionality. There are few limitations in functionality as well, although wallets, centralized exchanges, and decentralized exchanges and applications are fast evolving to become more dynamic and possibly even blending different blockchain in the near future. However, up to now, coins can only be exchanged with each other through cryptocurrency exchanges or via p2p. Coins are built on different blockchain protocols, and those protocols do not mesh (Yet). On the contrary, tokens Ex: Ethereum (e.g., ERC-20) can be exchanged through internal applications amongst each other with minimal friction because they are built on standardized code protocols. There are several other outlets that will enable token exchanges.
The third is curiosity: By learning the difference between Coins and Tokens I was able to understand why most crypto investors value Coins that have their native established blockchain above others. After learning these details, I could understand how a full ecosystem is being built on the top of these main blockchains and started to pay attention to those ecosystems a bit more.
Learning what each blockchain has to offer is a great start before diving into a sea full of tokens hard to distinguish which one will have a future utility. When it comes to tokens, I try to focus on the ones that already have a working product or service because many are just promises.
I hope you found this information helpful and you can understand the, still slightly blurry, the line between Crypto Coins and Crypto Tokens. As technology evolves, we will certainly improve on these classifications and maybe one day even encounter most of this term on a dictionary, but for now, we do the best we can to educate ourselves about this cutting edge technology. I certainly do not want to lag!
All my best
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