Coin? Token? What is the difference?

Crypto space exists and thrives through coins and tokens. While they are fairly similar and interchangeable: both coins and tokens run on blockchains and can be used for the same purposes, such as buying, selling, and trading.

However, if you’re into crypto or learning about it, you should know that they are some notable differences.

Coins work on a protocol level, whereas a token works on an application level (not integral to the function of the protocol). Developers create tokens to support an application or function they created within a blockchain.

Gas (fees to confirm a transaction) must be paid for all token transactions on a blockchain via a coin. So, any application built on Ethereum must use Ether coins to transfer any specific tokens from one user to another or between the Dapp and the user.

Some tokens exist in multiple blockchains; for example, LEO Token is on Ethereum, BSC, and the Hive. On the other hand, not all blockchains allow tokens to operate on them. Take Bitcoin, for example. All transactions within the ecosystem are transfers of the blockchain’s coin: Bitcoin.

Some tokens can become so popular over time that they finally decide to create their own mainnet, meaning they create their own blockchain and coin, like Crypto.com.

While coins are considered a store of value, meaning you invest (buy) some coins to hold them and hopefully see the value grow, tokens can have specific uses.

Indeed, most tokens exist to be used with decentralized applications. But some tokens can also be created to represent a physical thing. WePower (WPR) is a good example of a token that represents a physical thing: electricity. The project’s application allows users to buy and sell electricity on the blockchain using smart contracts. Its token (WPR) represents a certain amount of energy.

Here are some different categories of tokens:

• Platform tokens: support decentralized applications on the blockchain (for example, BNB allows users to swap coins/tokens on Binance for either a discount on trading fees or to pay for those fees).
• Governance tokens: allow users to vote on a decision surrounding a platform or service. Having more tokens means having more say in the platform’s decisions.
• Security/Asset tokens: equate to an ownership stake or share in a company or DAO, with an expectation of profit (the intention that the value may be worth more in the future). These tokens must be regulated, and if not, they are operating illegally.
• Utility/Application tokens: are backed up by a project and provide users with products or services, aka commercial intent. Often they are unregulated.
• Payment tokens: have no other purpose than to pay for goods and services.