A Coin is not a Token
Once you get into the cryptocurrency space, you’re hit with a lot of technical jargon that gets increasingly difficult to keep track of. Coming across new words in many different articles becomes the norm. One common misnomer is the use of the terms coins and tokens. It is understandable because they both represent units of accounts or value on a blockchain.
What is a cryptocurrency?
Cryptocurrencies are digital or virtual currencies that are encrypted (secured) using cryptography. It uses cryptography to secure and verify transactions as well as to control the creation of new units of a particular cryptocurrency.
Although there have been other cryptocurrencies before Bitcoin, the creation of Bitcoin was a huge milestone because for the first time, a digital currency was truly decentralised and distributed.
The difference between a coin and a token
- A coin is meant to be used as a form of payment.
- A coin is a unit of value that runs on its own blockchain
- It can be used to store value
- Examples include BitcoinCash, BitcoinGold, Litecoin, Dash etc
Altcoins (Alternative coins) are coins that are created from the Bitcoin source code. The source code is copied (forked) and modified with new features that the creators feel will make it better than Bitcoin or suit their purpose. Examples of Altcoins include Litecoin, Dash and Doge.
- A token represents a tradable or fungible asset
- A token doesn’t operate on it’s own blockchain, e.g tokens that are created on the ethereum blockchain
- Examples of tokens include BAT, EOS, ETH
One might argue that given that tokens like ETH which runs on its own Blockchain should therefore be called a Coin, fair. I think the most important distinguishing quality between the two is that tokens represent a certain kind of asset or utility while coins are mainly for payments . Ethereum tokens are utility tokens in that they are used as gas to pay for transactions on the network, so even though it runs on its own blockchain, it is a token because it represents some form of utility.