Coin vs token. What is the difference?
Ethereum is not just a network that can be used as a digital currency system, it is also a platform where other applications can be built. There are two types of native digital assets within the Ethereum universe. Computers-participants use these assets to “pay” each other to perform operations. A “coin” — Ether — is used within the network and a “token” is used within the application.
What is ERC20 Token?
ERC20 is a set of standards created for applications built on the Ethereum network. To comply with ERC20, an application must have certain types of functions that would allow it to communicate with other applications. If a token application is a TV, ERC20 ensures that it (TV) has HDMI and other inputs/outputs compatible with other electronics.
How to get into the Token game…
Tokens cannot be bought directly with real world currency. To get tokens, you will have to exchange coins (Ether, Bitcoin, Ripple) for them. Below is a simple guide on how to acquire tokens.
First, you need to buy coins that can be used in trading such as Ether (ETH), Bitcoin (BTC) or Ripple (XMR). Here is a good article on how to get ETH or BTC from Coinbase. From here you have multiple options.
Option 1 (Bitrex, Poloniex, Bitfinex)
Create an account with one of the exchange services. Once you go through the required verification process, you will be able to deposit coins or real world currency into your account. To do that you will need to send them from your Coinbase account into your exchange account.
Then you can exchange your coins (Ether, Bitcoin, Ripple) for tokens.
Option 2 (Shapeshift and like services)
You can trade assets (Bitcoin, Ether, Ripple) directly for tokens using a service like Shapeshift. Select a coin that you want to trade and send it to the provided address. In return, you will receive the tokens you requested. One thing to note here — in order to get your tokens, you will need to provide an address of a wallet capable of receiving them. I will talk about those next.
Storing Coins and Tokens.
Similar to banks, exchanges (Bitrex, Poloniex) and some online trading platforms (Coinbase) store digital currency for you and provide you with accounts and balances. However, there are several key differences between banks and online currency storages. The latter, unlike banks, don’t insure your investments or guarantee a full refund if something happens. There have been several large breaches that led to massive losses of funds— $70 million lost or $32 million from Parity. The easiest way to prevent losing money is to “withdraw” your digital assets and transfer them to a controlled location, like a digital currency wallet. By allowing you to keep a digital representation of coins and tokens (“keys”) to yourself, wallets give you full control and security over your portfolio. There are several types of wallets out there.
- Online Wallet — This is a wallet that helps you store your keys online. The main difference between an online wallet and an exchange is in an exchange, your keys are stored in bulk, in a pool (with other keys that belong to other people) whereas an online wallet is similar to a personal iCloud account that contains only your currency. Good example of online wallets are MyEtherWallet, MetaMask or Trust Wallet. All of them will allow you to store your Ether and tokens because they support the ERC20 standard.
- Desktop or Hardware Wallet — This is a piece of software that you can keep on your computer or put on an external storage device that holds your currency. Putting your keys inside a desktop wallet is like putting your keys inside a safe at home. Only you know the combination (password or some other form of encryption). You also know that hackers will not be able to get to it because it’s not online. Examples of this type of wallet are Parity and Mist.
- Mobile Wallet — This is a wallet application that you can install on your mobile device that holds your digital currency. Providing the same functionality and protection as a desktop wallet, it also allows you to have access to your currency from a phone or tablet on iOS or Android. By using a mobile wallet, you can securely store your coins and tokens and transfer them to exchanges to perform trades. Trust Wallet is one of these applications. It supports Ethereum, Ethereum Classic and all of the ERC20 tokens.