We have often seen people using different terms when it comes to cryptocurrency. However, there are specific terms that might sound confusing. The majority also gets confused with names like “coin” and “token”. As their function seems to be same but they are technically different from each other. In this article, we will read the key features of both the terms and will get to know what is the critical difference between the two.
What are the Coins?
Coins are nothing but cryptos which possess to have a standalone, independent blockchain. The best example of a coin is Bitcoin.
These cryptocurrencies are used to achieve a specific goal. This is possible because cryptocurrencies are bootstrapped from scratch. Also, a broader network is designed explicitly in these cryptocurrencies. For example, Bitcoin is a medium of exchange that has a very secure and fixed monetary policy.
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Moreover, bitcoins are a censorship-resistant store of value. In the market of cryptocurrencies, the native token of Bitcoin, BTC (i.e., bitcoins), has both the highest market cap and realized market cap in the cryptocurrency sector. Also, bitcoins are the most liquid cryptocurrency.
Coin projects take inspiration from past technologies and methods or other cryptocurrencies and then integrate them into an innovative network catering to attain a specific goal.
There is another example of a coin which is the native coin of a smart platform. This coin is called Ethereum’s Ether (ETH) and is used for creating general-purpose computer programs that run on a decentralized blockchain. The functioning of Ethereum is very interesting. Unlike bitcoins Ethereum doesn’t focus on financial data, it directly focuses on arbitrary program data. This program data can cover anything from games to social media. Ether is generally used for sending/receiving, paying gas fees, managing assets, and interacting with decentralized applications (apps) on the network.
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What are Tokens?
Tokens are nothing but a kind of unique outlay of broader smart contracts platforms. These platforms enable users to create, issue, and manage tickets that are derivatives of the primary blockchain. The example of such a platform is Ether.
For example, to exchange with each other Ethereum’s ERC-20 token standard fueled ICO craze of 2017. This was nothing but a protocol for creating tokens (besides ETH). These tokens are built on the Ethereum blockchain.
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Tokens play a very crucial role in the market of cryptocurrencies. To execute purposes such as incentivizing specific behaviour or paying the fee, etc., within the application’s ecosystem, they function as “utility” tokens.
For example, on the Ethereum, the famous ERC-20 token Dai is a crucial part of the MakerDAO app. MakerDAO is nothing but a way for users for the access of credit instruments like lending/borrowing using Dai. This is designed to be stable. Dai is a token that can be exchanged for any other ERC-20 ticket. Also, it can be exchanged with different Ethereum-based standards (i.e., ERC-721), including the ETH coin.
This was a fundamental difference between the two most commonly used term in the market of cryptocurrencies. By now, I hope you have understood the real difference between “coins” and “tokens”. Share this article with someone who can be helped with this information.