Crypto guys#03 -First thing to know as a beginner in Crypto
Coin VS Token
Most of the beginners come across two words Coin and Token. People mostly get confused with these words. But, It is totally fine with using the word token because majority are tokens and coins are in minority.
Let’s talk about Coin first. If a cryptocurrency has its own blockchain then it is called as a Coin. But, when the same coin traded in other blockchain then it is referred as Token. For Eg: Let’s consider well known blockchain Ethereum and Solana. If Ethereum cryptocurrency is traded on its own blockchain which is Ethereum then it is referred as Ethereum coin. If the Ethereum cryptocurrency is traded in Solana blockchain then it is referred as Ethereum Token. Same goes for Solana and other blockchain coins as well.
Above we saw one case of the Token. So the other case is if any cryptocurrency which does not have its own blockchain and uses the help of existing blockchains to trade then it is referred as Token. For eg: Popular tokens like Dogecoin and Shiba Inu don’t have their own blockchain. So, They are traded on other blockchains.
FYI: The tokens which run on Ethereum blockchain are called ERC20 tokens, on Binance Smart chain (BSC) are called BEP20 tokens, on Solana blockchain are called SPL tokens, etc.,
So, What’s the purpose of these tokens and coins.
The Tokens and Coins can be classified based on their purpose:
(i) Blockchain / Network coin
(ii) Platform token
(iii) Stable coin
(iv) Governance token
(v) Launchpad token
(vi) Security token
(vii) Utility token
(viii) NFT token
(ix) Meme coin
(X) Shit token / Fake token
Blockchain / Network coin
This coin represents the blockchain. For eg: Ethereum blockchain is represented by ETH (Ethereum) Coin. The coin purpose is to act as payment for network fees for every transaction made in the blockchain. There may arise a question why so many blockchain if simply I can use Ethereum blockchain to transfer the crypto. Yes, you can do that but the fee needed to be payed for every transaction is around 50$ -250$ it may also go up in future. This is where the other blockchains comes in. They have improved transfer speed, enhanced security , low gas fee (Transaction or network fee) and other unique features. Some are even forks of Ethereum blockchain like Polygon(Matic) network. Each transaction in Polygon cost mere cents.
This token represents a platform (Defi, Decenterlized app or other blockchain application). For eg: The token Cake represents PanCakeSwap defi platform. Similarly, UNI represents the UNISWAP platform. The purpose of the token is used as a reward whoever stakes, provide liquidity to liquidity pool, Swapping for other tokens or for using their application.
This coin represents the fiat currency. Like USDT, BUSD, HUSD, USDC, DAI all these coins are representation of real US Dollars. They don’t high volatility like other crypto currencies. The price change in the stable coin is almost negligible.
This token determines the power you own in a decentralized protocol. Just imagine a small government run by the token holders and they get rights to vote on whatever proposal the protocol brings in. This token gives voting and management power to the users. The more you hold more power you get but with some rules/restrictions. Even UNI and Cake are used as governance token. The holders of these tokens can vote on the proposal brought by UNISWAP and Pancakeswap.
This token is used to participate in IDO/ICO/IEO by staking the token. The more token you stake the chance of getting allocation increases. Most launchpads go with static staking. For eg: You need to stake 1000 launchpad token to get an allocation. Other launchpads go with dynamic staking. For eg : one can stake how much launchpad token one wants. The allocation is given based on the amount of the tokens staked. Each Launchpad have their own rules on allocation so, its always good to check before you stake.
This token represents the assets in physical world. Eg: Gold can be represented as a token. Security token is like bond and equity. Even a piece of real estate can be held by security token. There is a chance somebody may create a security token without any real asset bind to it. So to avoid this security token should comply with federal laws.
The purpose of the token is it gives access to certain value which can be used in decentralized application but it is not used for investment. Let me simplify it for you by real world example when you go to game arcade you cannot use your US dollars to play games. Instead you need to exchange US dollars to a token provide by the game arcade. So, These tokens gives access to play game in arcade. In crypto this how it works you can use token provide by Dapps to buy assets in metaverse or use the token to publish advertisement in browser like brave does using BAT tokens.
NFT stands for Non-Fungible token. Each token is unique piece and NFT is the most confusing part of the Tokens. Let me make it simple for you. Consider if Legendary Music director A.R. Rahman tries to sell the half of the ownership of one of his album. He divides the ownership into 100 token and he keeps 50 tokens for himself. The other 50 token he sells it in a NFT market place (popular one is opensea)and the fans want one for themselves. So, price increase gradually based on demand and fandom tied to NFT. There is no rule that 50 NFT will go for same price and It depends on user for how much he/she wants to sell it . Each of the 100 NFT token carry unique address whereas other crypto than NFT carries same address for a blockchain. For eg: X number of Bitcoin in Ethereum blockchain has same address but X number of NFT in Ethereum blockchain has unique address per NFT. So, In conclusion the address of the NFT matters more than the piece of art or music.
The meme token has no purpose other than it is created based on meme. Mostly these coins go up in price based on their popularity or if popular people like Elon Musk tries endorse the token like he does with dogecoin and Shiba Inu.
SHIT / FAKE Token
As the name suggests these are fake tokens used to sweep all the money one have invested on this token. These tokens are worthless which are used by scammers to rug pull all the investors money. The most recent rug pull was Squid game token which started as meme token for the popular series Squid game. Due to the popularity of the show the scammers used as an opportunity to rug pull. Everybody believed in Squid game but it was Money Heist which took over. Jokes apart don’t blindly invest in any tokens without proper research.
Disclaimer: I am not your financial advisor and Do your own research before you invest in anything. The above classification is based on my opinion alone and if you find any information inappropriate please leave a comment.