Why launch a token instead of a coin in an ICO?
Let’s start this conversation by clearing away a few cobwebs.
Aren’t tokens and coins the same thing? Yes… and no. The labels “token” and “coin” are certainly used interchangeably in most cases, and they even perform many of the same functions, but there are also a few fundamental technical differences between the two that will become more and more important to be aware of as the cryptocurrency industry evolves.
Think of coins as the true, separate, individual cryptocurrencies built from the ground up on their own blockchain. Bitcoin, Ethereum and Ox — these are like dollars, euros, rubles or pesos. Intertangled market forces causes the value of one currency to affect another and they can be traded on exchanges, but they also exist entirely independent of one another.
Tokens, on the other hand, can be compared loosely to real life currencies that are pegged to the dollar. They depend on the strength and infrastructure of the dollar to maintain their own value. Tokens similarly rely on the blockchain infrastructure of proper coins to perform their own functions. This fundamental difference between coins and tokens leads to different uses that anyone trading in cryptocurrencies and tokens should be aware of.
Coins are, again, used in a similar fashion to dollars, euros and most other fiat currencies: to transact or store goods and services. Tokens initially serve the primary function of raising money for ICOs (or ITOs as they should be called). But tokens don’t just represent the value of something, they can also be used in a mini-ecosystem to run functions like smart contracts and proof of holding.
So, why tokens and not coins?
- Simplicity — Why spend the time, energy and resources constructing mind-bogglingly complex algorithms and smart contracts from scratch when a token based on somebody else’s blockchain will serve your needs just as well?
- Limitations — Coins are fairly limited in their functionality. If they are compared to cash, tokens can be compared to credit, offering a flexible system that opens up worlds of possibilities.
- Coins were made to host tokens — By creating tokens on coin blockchains, you’re increasing the value of the coins and supporting the entire cryptocurrency ecosystem!
So, obviously you’re going to choose to launch a token, right? Well, not so fast. Odds are a token will fit your needs better than developing your very own coin. But, like everything else in the crypto industry, it’s best to take your time and analyze such a decision. Perhaps consulting with good advisers is the best way to go. No matter what you choose, your decisions should be well-thought out and understood in depth so you could justify them to anyone who asks.
