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Cryptocurrency Tokens vs Coins: What’s the Difference?

A popular example of a governance token includes decentralized exchange Uniswap’s token (UNI). Voting topics can include fee prices, upgrades to the network, and reward quantities. When a cryptocurrency uses or “borrows” another blockchain’s network, then it is considered a token. Tokens have their own price, name, and utility that differs from the native cryptocurrency. Transactions made with tokens are eventually settled on the blockchain that they use. All the bitcoins that miners create are recorded on Bitcoin’s blockchain.

Tokens are merely a subset of cryptocurrencies which are built on top of other blockchains. If you want to buy a product in the digital world then cryptocurrency is suited for it as it represents a certain value. However, if you want to buy a utility or service that will be created for you, then tokens are very useful.

This reduces potential technical issues and streamlines the entire ICO investment process. While many hard fork coins are ranked high in terms of market cap, these projects do not represent a majority of cryptocurrencies. Most cryptocurrency projects on the market in 2018 actually start out by launching a digital token rather than a coin. Tokens behave very similarly to cryptocurrencies, in the sense that they are a type of currency that exists on a blockchain, and can be transferred from one account to another. However, unlike cryptocurrencies, their behaviour is not built into the blockchain software itself. Instead, their behaviour comes about by implementations in smart contracts.

The term coin generally refers to any cryptocurrency that has its own separate, standalone blockchain. The term token or digital tokens can refer to any cryptocurrency that is built on top of an existing blockchain. In Bitcoin, and in many other blockchains, the information being signed was about one account transferring units from itself to another account. These units are encoded into the software protocols of the blockchain software itself and are known as cryptocurrency.

They use an existing blockchain’s smart contracts to signal the start of transactions between users. Tether, Uniswap, and Polygon are examples of crypto tokens (they are all based on Ethereum and use something called the ERC-20 Cryptocurrencies VS Tokens differences token standard). While crypto tokens, like cryptocurrency, can hold value and be exchanged, they can also be designed to represent physical assets or more traditional digital assets, or a certain utility or service.

Unlike “coins” built on their native blockchains, tokens exist on top of a pre-existing smart contract blockchain. In broad terms, a digital asset is a non-tangible asset that is created, traded, and stored in a digital format. Using this definition, in the context of blockchains, digital assets include cryptocurrency and crypto tokens.

The Difference between a Cryptocurrency and a Token

For investors who store funds in an external wallet, it might be necessary to go through a few manual steps before receiving new coins. These days, there are multiple different ways of how crypto enthusiasts can trade their favorite coins and tokens. It’s important to remember that fees need to be paid for all token transactions on a blockchain, not just the creation of the token.

  • As per crypto auditor, they use the ERC-20 token standard most commonly as it interoperates with Ethereum Ecosystem.
  • It continues to grow with the increases in the multifaceted needs of the blockchain ecosystem.
  • Using this definition, in the context of blockchains, digital assets include cryptocurrency and crypto tokens.
  • For investors who store funds in an external wallet, it might be necessary to go through a few manual steps before receiving new coins.

As a practical example, decentralized storage provider Bluzelle allows you to stake your tokensto help secure its network while earning transaction fees and rewards. Many blockchain projects issue tokens during their ICOs with the intention of creating their own blockchain in the future. The process of raising money during an ICO doesn’t require a new project to already have an existing, standalone blockchain. For project teams, it’s easier to raise funds and distribute tokens via an existing blockchain.

In this article, you’ll find all the key coin vs. token differences and learn what purpose each type of cryptocurrency serves. Cryptocurrency coins and cryptocurrency tokens play a vital role in the digital currency ecosystem. Coins and blockchains provide the underlying architecture that allows cryptocurrency tokens and other smart contracts to exist and operate. Traditionally, cryptocurrency coins such as Bitcoin and Ether have been used for the purposes of exchange or investment as assets. The Ethereum blockchain enabled smart contracts and that cleared the way for tokenization.

Many are legitimate efforts to raise funds for projects or startups. Since the developer of a dApp and token doesn’t have to create their own blockchain, it saves them time and resources. They can use the features of cryptocurrency with their application while benefiting from the security of the native blockchain. All the largest market cap digital assets are defined as coins today.

The Difference between a Cryptocurrency and a Token

The fact that BTC is on its native blockchain is the reason it’s a coin rather than a token. Some cryptocurrencies have a clear centralized issuer, such as Circle for USDC and Tether Limited for USDT. Governments can also issue CBDCs (Central Bank Digital Currencies). However, there are many decentralized crypto projects like Bitcoin that have no clear leader or governance structure.

Coins are crypto assets that have their own underlying blockchains and protocols. They operate in a way that is similar to how fiat currencies work and are mostly designed to be payment methods or storages of value. For investors, it’s important to note that coin swaps could be done manually or automatically. Many exchanges like Binance, for example, have a feature that automatically swaps digital tokens for coins.

I wouldn’t recommend it to a complete newbie, but for someone with a bit of programming experience, it wouldn’t take as long as you might think. It does need the developer to spend some of the native coins to the blockchain the token is being created on, though. As a decentralized, liquid, and composable digital asset with ubiquitous network effects, MakerDAO is one of the most useful cryptocurrency protocols. Tokens are one of the most creative innovations that have risen out of the evolution of cryptocurrencies.

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Cryptocurrency Tokens vs Coins: What’s the Difference?

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