What’s the difference between a crypto coin X a token?
Let’s say you want a car to move around. The standard way that I see it, you can buy your car and have to manage that car, like keep it up to date, change the oil, replace the tires, all that stuff. It’s your responsibility to keep that car because it is yours.
Well, there is an alternative. You could rent a car, meaning you can borrow a car for a monthly payment. In this case, you can use it for whatever purposes you might need, you just pay the owner the rent for using that car and then you don’t have to worry about any of the issues.
Depending on the different factors in your life, you would have to choose the one that best fits your needs and which one was wiser to go with. For example, you may not have a bunch of cash to buy a new car outright, or maybe you were just super busy and you don’t want to take care of the maintenance.
If you think of this analogy, it’s pretty much the same as the differences between a coin and a token.
Coin X Token
A coin uses its blockchain to keep track of all the data. In our car analogy, it would be buying the car. The most suitable example of a coin is Bitcoin.
When it comes to a token, you are using someone else’s coins blockchain as your infrastructure, while you pay rent. When you create a token, you don’t have to create the blockchain, write the full code and worry about how it should be validated.
Instead, you just create the token that runs on that blockchain.
Ethereum network and ERC-20 tokens
Ethereum is a blockchain platform that both stores value and validates transactions. An ethereum token, or an erc20 token, uses Ethereum’s blockchain’s capacities as its backbone and infrastructure.
For example, BAT is an erc20 token built on the Ethereum network. Its team decided it was not large enough to create their mainframe, but they wanted to create a system where users could reward the creators that they follow simply.
Without going too deep into it, the BAT team can focus on providing a great product that is the Brave browser, a web browser that automatically replaces a website’s advertisements with advertisements that reward the creator with brave.
Anyway, by creating a token, the brave team could rely on Ethereum’s network to provide safety and stability, while they focused on their product.
You should know that a team of developers can migrate from a token to a coin if they decide that their project is growing quickly enough. If we think about Crypto.com, they launched their own mainnet, which is a fancy way of saying they launched their own coin now, which is now validating their transactions.
See, they used to have a token, but it got so popular that they decided to create their blockchain and branch off. So here’s an important thing: you can’t convert a token straight into a coin.
You can create a coin that functions the same way and then create a bridge that will allow users to swap out their previous tokens for the new coins. In some cases, some coins like LEO are tokens on multiple networks.
For example, LEO is on the Ethereum network, the Binance smart chain network, and the Hive network. Another important thing to know is that some coins are represented as tokens on other networks.
Binance peg ethereum
A few days ago, I bought something called binance peg ethereum token on the Binance smart chain. I did not buy Ethereum, instead, I bought a representation of Ethereum on the binance smart chain network that mimics the price of ethereum.
You might be wondering why I did this. Well, a regular Ethereum transaction is too expensive right now. However, a transaction on the binance smart chain is way cheaper. So it is much more affordable to trade a representation of ethereum on the Binance smart chain network.
You can kind of think about it like if you buy a stock of gold. You own the stock, but all it does is represent the gold. At any time you can cash out that stock for a piece of gold. So it’s gold, at least for trading purposes.
There are a few different types of tokens that we can use to categorize the purpose of each token. Let’s go over a couple of examples here, and maybe you’ll get the hang of it if you haven’t already.
Platform tokens
The number one is platform tokens. They are created to support a decentralized application on the blockchain. For example, Uniswap is a decentralized application that allows users to swap out ethereum tokens for other ethereum tokens. And even though they are a decentralized app, they also have their token.
The Uniswap token is given out to those who invest in their platform and it has the promise that eventually token holders can vote on changes in the future, and maybe even earn some of the profits from the trades.
Security tokens
Next up we have the security tokens. They are tokens that are minted to represent ownership of another asset. Let’s say you wanted to buy gold but you didn’t want to hold the gold. Someone could create a token that is tracked to the price of gold. Instead of owning the gold, you owned a representation of it, which technically would be much safer, because it is much more difficult to hack an ethereum token than it is to break into someone’s house.
Now the tricky part here, is that there should be a real asset behind it. For example, I could create a gold token, ask you to invest in it and not have any gold to back it up. You should always DYOR before buying any kind of security token.
Transactional tokens
Transactional tokens are used as a fast and easy way to transfer money. If we think of the coin xDAI, it is currently pegged to the United States dollar, and it’s easy for people to pay for coffee, or buy that shirt you like at that local store. You can use it the same as cash, however, the expenses of it are super low.
Utility tokens
Number four is utility tokens. So, utility tokens are tokens that have a value tied to their ownership. For example, BAT is an ethereum token that can be used to advertise on the brave browser.
In other words, utility tokens can do something. Security tokens don’t do anything, you just buy them and hold them, but a utility token can be used for commercial intent.
Governance token
Lastly, we have number five: the governance tokens. They are tokens that allow token holders to vote on certain things. For example, Uniswap could be a governance token in a future version of the Uniswap exchange.
Token holders could choose to vote to raise the fee of a Uniswap trade from 0.3% to 0.6%, and everyone with a token would be allowed to vote on that change. The decision with the most votes chooses the winner. So, you have more voting power by holding more tokens.
KogeCoin token
KogeCoin is a deflationary token with a maximum (and total) supply of 50 million. We launched our token to benefit our users with many utilities, such as staking, governance, dividends, and receiving rewards. You can check all about our tokenomics here.
Conclusion
Now that we’ve gone over the difference between coins and tokens, and the types of tokens, hopefully, you have understood why we need all of them and how they work. If you are interested in buying our Koge token after seeing how awesome it is, check out this guide.
If you have any other questions about coins and tokens, please stop by the KogeFarm Telegram or Discord communities, where you’ll always find someone willing to help you out.
