In the crypto world, newbies might often come across the terms token vs coin used interchangeably. Although many people confuse these two terms, their purposes are quite different. In short, one has a native blockchain, while the other is built on an existing blockchain.

What are the other differences between coins and tokens? What are they used for, and what are their main benefits? Let’s find out.

What Is a Coin?

Crypto coins or altcoins are all digital currencies that have their blockchain. They are created by mining, and there is more than one type of crypto coins. On that note, you’ll find native coins, forked coins, wrapped coins, and stablecoins.

Crypto coins contribute to the decentralization and security of the blockchain network. Most of them have a limited supply, which means that their value will increase over time. Their main characteristics are fungibility, divisibility, acceptability, uniformity, and portability.

What Are Crypto Coins Used For?

Crypto coins are similar to traditional money since they can be used as a payment method. I.e., you can use crypto coins to pay for goods and transfer them to other people. You can also stake, buy, sell, and trade them on various reputable cryptocurrency exchanges.

Other use cases of crypto coins include:

  • Peer-to-peer financial transactions,
  • Contribution to decentralization,
  • Keeping the transactions private,
  • Liquidity mining, and
  • Staking.

Benefits of Trading Coins

The main benefit of trading crypto coins is their stability and accessibility. Coins are less volatile than tokens, which makes them a good investment option, especially for long-term inventors.

Furthermore, crypto coins are highly accessible — you’ll be able to trade them on most centralized crypto exchanges. Their infrastructure is also more established, which means that you’ll be able to find information about them more easily. Since coins are the native currency of a particular blockchain, you’ll get to use them to purchase real goods.

What Is a Crypto Token?

Tokens enable blockchain app users to pay for certain services. Unlike coins that have their native network, crypto tokens are built on an existing blockchain. They cannot be mined, instead, they function through smart contracts. Tokens can represent many things, like assets, utilities, and shares. The best examples of tokens are NFTs, vouchers, and tickets.

Tokenized assets can also act as tangible assets, such as art, and intangible assets, such as ownership rights. In fact, you can tokenize anything, as long as it has value and can be owned.

What Are Crypto Tokens Used For?

Tokens can be used to pay fees, enable access to dApps, vote on changes, and tokenize assets. However, they are mostly used to raise funds for the development of crypto projects. On that note, crypto startups sell them to investors after which they become a currency that gives them access to various features.

Other use cases of crypto tokens include:

  • Participation in P2E games,
  • Facilitating ownership of digital art,
  • Crowdfunding,
  • Trading and lending, and
  • Loyalty programs.

Benefits of Trading Tokens

Compared to crypto coins, tokens are more volatile, meaning they can generate more profit in a shorter period. This factor makes them ideal for short-term investments. On top of that, since they are often part of projects, if the project becomes successful their value will go up.

You’ll notice that many crypto exchanges have their native tokens, so-called exchange-based tokens. These tokens enable their holders to save on trading fees, access token presales, and obtain rewards through staking.

Difference Between a Coin and a Token

Now that we’ve defined crypto coins and tokens, let’s list their key differences.

Infrastructure

Crypto coins and tokens differ in their infrastructure. Namely, coins have their native network, while tokens are built on existing networks. This means that coins can be mined and staked using PoW and PoS consensus mechanisms.

Then again, you won’t find Proof-of-Work tokens, since they cannot be mined. However, tokens can become coins if they develop their native blockchain network and transfer their tokens to it.

Issuance and Supply

Since coins are mined, their maximum supply is fixed, which means that there are fewer of them in circulation than tokens. On the other hand, the token’s total supply will depend on the needs of its project. 

When it comes to their availability on crypto exchanges, coins are usually traded on centralized exchanges, while tokens are more often found on decentralized exchanges.

Use Cases

Another key difference between coins and tokens lies in their application. On that note, the primary role of coins is to act as a medium of exchange. For example, coins can be used for transactions, buying goods and services, and as a store of value.

Although tokens can also be used for trading, their main purpose is to improve the functions of dApps and to represent an asset. This is why coins are a better option for value preservation and tokens for value creation. However, tokens are more efficient for singular use cases since they are easier to create than coins.

Value and Price

Coins and tokens are valued in different ways since the former are used as a store of value, and the latter to improve dApps. Because of this, coins will be less volatile than tokens. Moreover, the value of the coin will depend on the demand, while the price of the token will be determined by the project developers.

  • Bitcoin (BTC)
  • Ethereum (ETH)
  • Binance Coin (BNB)
  • Tether (USDT)
  • Chainlink (LINK)
  • Shiba Inu (SHIB)

Conclusion

So, what’s hidden behind the crypto-native meaning? Every blockchain has its native cryptocurrency, which can be a crypto coin or a crypto token. The main difference between these two terms is that the former operate through their network, while the latter are built on an existing network.

Furthermore, coins act as alternatives to fiat, in the sense that you can use them as a medium of exchange, while tokens represent assets.

FAQs

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