The cryptocurrency industry first began with Bitcoin, but since then thousands of altcoins have been created. Over time, unique use cases were developed and continue to be developed as the industry itself grows. This has created some significant confusion surrounding the distinction of certain types of cryptocurrencies, namely, tokens vs coins.
The following in-depth guide will explain the difference between a token and a coin, and provide a detailed description of each type of cryptocurrency.
What Is A Coin In Cryptocurrency?
Bitcoin was the first cryptocurrency to be created and its debut set the standards for what it means to be a coin in crypto. The name Bitcoin is made up of the word bit and coin. A bit is a binary digit representing the smallest increment of data on a computer, while a coin is a common unit of account acting as money historically.
Based on these loose definitions alone, we can begin to understand what it means to be a coin. Coins have been used all throughout history as money, beginning at around 600 BC in ancient Greece. Coins have been part of most monetary systems that have followed, from the Roman empire to the United States dollar system.
It is the money-like quality that distinguishes a coin from a token and other types of cryptocurrencies. A crypto coin is further defined as living on its own blockchain. Blockchain technology records all transactions made with the coin on its immutable digital ledger. The network and associated assets are protected by cryptography.
Bitcoin itself was designed as a form of peer-to-peer digital cash, essentially replacing money as we know it. Satoshi Nakamoto, Bitcoin’s mysterious creator, designed the cryptocurrency to have coin-like attributes. Satoshi also sought to give Bitcoin the attributes of gold, which has commonly been used for high-value coins for investments, money, savings, or as a collectible.
Crypto coins also typically can be mined in some way. With precious metals, a process called mining unearths raw ores of the precious metals, which is later melted and refined into gold bullion, bars, or coins. With cryptocurrencies, however, a proof-of-work algorithm unlocks new coins from the protocol as an incentive for users to participate and secure the network. Crypto holders who validate transactions and keep the network secure via node staking can also earn a reward of new crypto coins.
How Are Coins Used In Crypto?
Coins are used in crypto primarily as you would use money – either to spend or save. Because many cryptocurrency coins are speculative investments, plenty of users simply HODL their crypto without ever spending it.
Many crypto holders also decide to trade crypto coins, using trading platforms such as Margex.
Common & Popular Coin Examples
The most common examples of crypto coins are Bitcoin and Ethereum - the two largest cryptocurrencies by market cap.
Bitcoin – As we’ve established, Bitcoin was designed to act as digital cash and replace the currently recognized forms of money. Bitcoin relies on its own blockchain to send coins to and from BTC various addresses.
Ethereum – Ethereum is another form of a crypto coin. Ether is the native cryptocurrency to the Ethereum blockchain network. To transact across the network, users must pay an ETH gas fee in order to send Ether from one wallet to another.
Litecoin – Litecoin is yet another crypto coin, and is designed much like Bitcoin was. Litecoin is based on the original Bitcoin core code, but is faster and has four times the max coin supply. Like Bitcoin, it has its own blockchain and can be used as money.
Dogecoin – Although Dogecoin is mostly referred to as a meme coin, it is still a coin that’s primarily designed for use as a payment or as money. It might seem strange to pay using money that represents the image of a Shiba Inu dog meme, but Dogecoin remains among the most popular cryptocurrencies today.
What Is A Token In Cryptocurrency?
Crypto tokens are a new breed of cryptocurrencies, emerging after the debut of Bitcoin. The difference between a token and a coin comes down mostly to the opposite of the attributes listed above. For example, whereas a coin has its own blockchain, a token does not and lives on other existing blockchains as a smart contract.
Tokens are essentially a digital currency representation of an asset or utility on the blockchain. All tokens are considered altcoins, but not all altcoins are considered tokens. Tokens are typically coded to function a particular way, running on top of other networks such as the Ethereum network.
How Are Tokens Used In Crypto?
Cryptocurrency tokens can be compared best to an arcade. The arcade tokens only provide utility within that particular arcade. If you were to try to spend the same tokens in another arcade or use it as money, you wouldn’t get very far. Crypto tokens work very similarly in a sense that they only provide utility in the ecosystem they are designed for.
Many crypto holders also decide to trade crypto tokens using trading platforms such as Margex.
What Are Smart Contracts And How Are They Used?
A smart contract is a digital transaction protocol intended to automatically execute, control, or document relevant events and actions to the terms of a contract or agreement between two parties. When the transaction is digitally signed, it is recorded into the blockchain’s immutable ledger to keep a record of the transaction and associated contract details.
Smart contracts allow decentralized apps to run, such as decentralized finance (DeFi) platforms, decentralized exchanges (DEXs), and much more. Other crypto tokens can also be created, such as stablecoins like USDT, using the ERC20 standard on Ethereum or similar blockchain-enabled standard.
Common & Popular Crypto Token Types
Because tokens can be coded and designed to function a certain way, it has opened up the doors for developers to create all kinds of interesting financial instruments and digital assets.
Here is a list of the more common crypto token types available today. This is another way to see the extreme differences between a crypto token vs coin, as there cannot be additional types of crypto coins.
One of the more popular cryptocurrency use cases today is stablecoins. This type of token is typically backed by another asset, for example an equal amount of USD, in an attempt to achieve price parity with the dollar for stability. Cryptocurrency traders move to stablecoins when they expect volatility or a market downturn. However, stablecoins are a great way to move or store value in a stable format.
Utility tokens are a type of cryptocurrency that grants special benefits as part of an exclusive ecosystem. A utility token allows a user to perform a certain action within a specific blockchain network or program.
Non-Fungible Tokens (NFTs)
NFTs, or non-fungible tokens, are tokens that store digital data on the blockchain, providing verification of ownership. NFTs often contain digital art, music, and more and use a different token standard than other tokens.
Security tokens are tokens that represent shares of traditional assets such as stock, real estate, bonds, and more. Several blockchain token projects intended to be designed as utility tokens are actually considered security tokens under the SEC’s Howey Test.
Governance tokens are a type of token that grants users voting rights within a specific blockchain protocol. This type of crypto tokens allows its holders to govern the future of the protocol.
Commodity tokens are a type of crypto token that is designed to represent a commodity like gold, silver, oil, or grains. Typically, such commodity tokens are backed by the commodities they represent.
Cryptocurrency Coins Vs Tokens. A Comparison
Remember to utilize the below reference table for a quick look at a comparison between a crypto token vs coin as well as any key differences between them.
|Difference Between Coins and Tokens
|Can Be Used As Money
|On Its Own Blockchain
|Can Be Traded On Margex
|Created Using Smart Contracts
How To Potentially Profit From Coins And Tokens
The massive world of cryptocurrency tokens vs coins means there are many different ways to make money and potentially profit from each type of cryptocurrency. For example, users can mint NFTs as art and sell the tokens on the OpenSea Marketplace. Alternatively, users can stake certain tokens within DeFi protocols and earn a variable APY yield on staked digital assets.
When it comes to trading a token vs coin or coins vs tokens, it truly doesn’t matter which you choose. The difference between coin and token doesn’t matter here, as the assets tend to follow similar market volatility depending on what more prominent crypto coins are doing, like Bitcoin or Ethereum.
Utilizing the powerful trading tools provided by the Margex trading platform, crypto holders can profit from the volatile price swings that cryptocurrencies are both loved and hated for. Margex provides traders with long and short positions using up to 100x leverage on Bitcoin and other cryptocurrencies. The broad range of trading tools allow traders of all skill levels to harness the power of the platform and boost profits across the board.
If you are planning to hold, the difference between crypto coins vs tokens also doesn’t matter as much. Just be sure to do your own research and pick only trustworthy crypto assets, such as those listed on Margex.
The world of cryptocurrencies is vast and growing by the number each day. What began as just Bitcoin has since grown to more than 10,000 different altcoins created in its honor. An entire industry of digital assets now exists, serving many different functions and finance needs. As such, many questions often remain.
We have put together this helpful FAQ designed to clear up any remaining confusion surrounding the difference between coins and tokens, and coins vs tokens.
Which is better: coins or tokens?
When it comes to tokens vs coins, there isn’t a clear winner as much as investors want an easy answer. Understanding the differences between a coin vs crypto token will help to choose which projects are the most interesting for you and your unique needs.
What's the difference between a token and a coin?
The difference between tokens and coins boils down mostly to if they have their own blockchain or not. Coins always have their own blockchains, while tokens live on existing blockchains like Ethereum. Coins are also often used as money while tokens only provide utility within the confines of a specific ecosystem or platform.
What’s the difference between a crypto vs token?
We know there is a lot of confusing terminology to consider in the crypto industry, but a crypto is a token and a token is a cryptocurrency. The terms are interchangeable. Only a crypto token vs a coin has differences, and different types of tokens each are designed for a specific function.
Is Bitcoin a coin or a token?
Bitcoin is a coin, with the word coin directly in its name. Bitcoin was the first ever coin to ever be created by Satoshi Nakamoto. Bitcoin has set the standard for what a coin should try to be, while it doesn’t have as much functionality as some other coins or tokens.
Can a token become a coin?
Yes, a token can become a coin, by switching to its own mainnet blockchain network. Many tokens were initially launched on the Ethereum blockchain, but have since transitioned off of the platform to become a coin of their own.
Does every blockchain need a token?
There are some private blockchains that do not rely on a cryptocurrency coin nor a token for operation. Many pundits of Bitcoin and other cryptocurrencies believe that blockchain is the breakthrough and the digital asset itself is worthless.
What is an example of a token?
The best example of a token is Basic Attention Token, which is used to pay content creators and users who give the content attention through the Brave browser. The token itself is useless outside of the ecosystem and cannot be used as a replacement for money (but still holds speculative value and can be sold for money).
Is XRP a coin or token?
XRP, also known as Ripple, is considered a coin because it is on its own unique blockchain. Ripple Labs, the parent company behind XRP is currently engaged in a legal battle to defend itself from being labeled as a security token. This makes its definition a bit more vague currently and needs further definition by the SEC for clarity.
Is ETH a coin or token?
ETH, also known as Ethereum, or Ether, is a coin because it lives on its own blockchain and can be used as currency or a form of money. The confusion lies in the fact that most tokens today are built on the Ethereum blockchain.
Are Stablecoins a coin or a token?
Despite the name coin being inside the term stablecoin, these assets are tokens. USDT and USDT are available as ERC20 tokens and exist across several blockchains.
Are NFTs coins or tokens?
NFTs are tokens. The word token represents the T in NFT. Non-fungible tokens are a special type of token commonly related to a data file involving art, music, and more.
Why do tokens have value?
Cryptocurrency tokens have value because holders and users expect the token to provide valuable utility through some means. In some examples, utility coins provide trading fee reductions, while others allow special benefits or voting rights within a certain ecosystem. The flexibility of tokens and smart contracts also add to the value they provide.
What is the difference between a crypto coin and token?
The main differences between a crypto coin and a token comes down to the fact if a coin is on its own blockchain or not. Coins are also more commonly used as money for transactions broadly or for savings, while tokens are used to activate benefits inside a closed garden.