Crypto Coins & Tokens Demystified

It’s Easier to Understand than you Might Think

The world of cryptocurrency can be a confusing place.

And one of the more confusing topics is the difference between coins and tokens.

Despite the fact that they’re often used interchangeably, they are not the same thing.

If you’re trying to understand the cryptocurrency landscape so you can invest wisely in what could be the future of finance, then this post is for you.

Now, if you’ve been reading my posts for any length of time you know I specialize in health/fitness/biohacking.

So, why am I writing about cryptocurrency?

Because finance is a huge part of life, and being financially healthy is super important.

So please stay with me through this post because I think you’ll find it interesting.

Because, from blockchain technology to a quick look at some of the more popular coins and tokens, this post will supply you with everything you need to have a basic understanding of these two digital tools.

And since Bitcoin is arguably the most popular coin and what most people think of when they think of cryptocurrency, let’s start with what coins are.

What is a Crypto Coin?

Crypto coins are a form of digital cryptocurrency that are native to their blockchain.

This just means they were created at the inception of the blockchain, and designed to be used solely and specifically in that blockchain.

*If you want to know more about blockchains as well, check out this post to learn more after you finish reading this one.*

This coin/blockchain connection is best represented by coins like Bitcoin and Ethereum.

Bitcoin is the only coin on the Bitcoin blockchain and was created within it.

Likewise, the Ethereum coin (ETH) is intrinsic to Ethereum and has been since the blockchain was developed.

Crypto coins are actual currency and are. created through a process known as “mining”.

Despite what some still believe, this is not a physical process. All mining is done through computers.

What Makes a Crypto Coin Currency?

The same attributes that apply to traditional fiat currencies also apply to crypto coins.

Crypto coins are currency because they are:

• Fungible- meaning, one Bitcoin is equal in value to another Bitcoin
• Durable- coins be used repeatedly and don’t lose value
• Portable- coins are capable of being exchanged and transferred
• Divisible- coins can be broken down into smaller units
• Scarce- coins are capped at a finite number.

What are Crypto Coins Used For?

Crypto coins can be used in the same ways traditional fiat currencies are.

You can use a crypto coin as:

• A medium of exchange
• A store of value
• A way to buy goods and services

Crypto developers hope that digital cryptocurrencies will replace paper fiat money, and cut 3rd parties out of transactions between sellers and consumers.

Also, crypto coins can be exchanged for other currencies.

How do you Get Crypto Coins?

Broadly speaking, there are three ways to get crypto coins:

1. Buy them on an exchange

2. Request to be paid in the form of cryptocurrency

3. Mine them yourself

As mentioned above, mining crypto coins is done through computers and is a complex and expensive process.

But if you have the interest and ambition, the next section takes a closer look at the mining process.

How are Crypto Coins Mined?

Unfortunately, most of the everyday PCs and notebooks aren’t up to the challenge of coin mining.

It takes powerful computers called rigs to generate coins.

It also takes a lot of electricity, cooling units to keep the rigs from overheating, and a lot of money to fund this operation.

Once all this is in place, the actual mining process goes like this:

• Transactions on the blockchain are validated through miners
• Their rigs do this by solving highly complex math equations
• Since blockchains are decentralized, there isn’t a government, corporation, or other 3rd party to oversee this process
• So to validate the work of the miners a consensus mechanism is utilized to ensure there is no forgery or deceit on the blockchain
• The two most common are: Proof of Work (PoW) and Proof of Stake (PoS), but there are other forms and PoS has many variants

What are Crypto Tokens?

Crypto tokens are another type of. digital assets.

But, unlike coins, they aren’t native to a blockchain.

Instead, they’re developed later on top of a pre-existing blockchain.

Tokens are typically used to represent assets, or represent ownership of something.

The best example of this is probably the popular NFTs, or non fungible tokens.

Crypto tokens can be bought, sold, and traded and actually have more functionality than coins.

And they can conveniently be used across multiple blockchains, whereas coins can only be used on their blockchain.

What are Crypto Tokens Used For?

Broadly speaking, there are three types of tokens that have different purposes and also have variants that make categorizing them difficult:

• Utility- grant users access to products or services and are commonly associated with decentralized apps, or dApps.
• Security- digital forms of securitized assets like stocks and bonds
• Payment- used to buy goods and services

What are the Other Characteristics of Crypto Tokens?

Besides the fact that they aren’t native to a blockchain, tokens also share these characteristics:

• Programmable- tokens run on software protocols such as smart contracts
• Permissionless- to use a token does not require specific credentials or acceptance from a centralized authority
• Trustless- whatever blockchain the tokens are used on are not overseen by a 3rd party or centralized authority
• Transparent- the token’s protocols, rules, and transactions can be viewed by anyone at any time.

How are Crypto Tokens Created?

As was alluded to above, tokens are developed through software protocols, usually referred to as standards, which dictate their functions and operability.

This process is a lot easier than creating a coin because it doesn’t involve creating a blockchain, mining, or a consensus mechanism.

The most common type of standards are smart contracts which were developed by Ethereum around 2015.

Essentially, the programming team decides what the token can and can’t do and spells it out in the standards.

Are Stablecoins Actually Tokens?

Yes, this is true.

Despite their name stablecoins are actually tokens.

As you can probably figure out by now, this is because they aren’t native to a blockchain but have been built on top of them.

Despite the fact that they’re not coins, they are stable.

Their value has been pegged to the price of another asset, like silver or a fiat currency.

Because of this they have proven to be much less volatile than other cryptocurrency, such as Bitcoin.

Coins and Tokens Demystified

As technology evolves and the internet gradually moves into Web3, crypto coins and tokens are likely to become a bigger part of everyday life.

So knowing what they are and how to use them is paramount moving forward.

And now you know the big differences between coins and tokens are how they’re created, and their relationship to the blockchain.

As the dollar continues to collapse and people continue to lose faith in central banks, take this basic knowledge of crypto with you so you can better navigate the crypto world.

Bitcoin and other crypto assets could offer a viable alternative to inflatable fiat money, so stay agile and stay up to date on crypto terminology.

And thanks again for staying with me on this little detour into financial health!

I’m still your guy when it comes to health, supplements, fitness, nutrition, and biohacking.

But every once in a while I like to explore a loosely-related topic.

Hope you liked it!