If you’ve been following the blockchain space, you must have heard about ‘tokens’ and ‘coins’. There is a great deal of confusion between them and many tend to use the terms interchangeably. However, there are significant differences between the two, so let’s understand what they are.
What is a Coin?
A coin is a digital asset that belongs to its own blockchain.
The largest crypto coin is Bitcoin, which operates on its own Bitcoin blockchain. The main function of Bitcoin is to serve as digital money. Although it is quite volatile, it can be used:
- To make payments through transfers
- As a more lucrative store of value
- As a unit of account (you can price goods using it)
There are other coins and they tend to have their own functions. For instance, NEO is staked in a wallet to earn a dividend called GAS, and when you send a token through the NEO network, you must pay GAS as a transaction fee.
The DASH coin has a different function, and a certain proportion of DASH allows you to vote on the DASH network.
What is a Token?
Tokens are a representation of a particular asset or utility. One token could represent any fungible and tradable asset, such as artwork or real-estate.
The main difference between a coin and a token is that tokens are created on an existing blockchain. The most popular blockchain token platform is Ethereum and the tokens created on the Ethereum platform are called ERC-20 tokens.
Since tokens are created on existing blockchain platforms, they are much easier to create. To create a token on the Ethereum platform, you just need to follow a standard template on the blockchain.
The largest token on the Ethereum platform is Maker (MKR), which is used to “stabilize the value of stable-coin DAI through a dynamic system of Collateralized Debt Positions (CDP), autonomous feedback mechanisms, and appropriately incentivized external actors.” It is also used to grant voting rights in Maker’s system.
Another interesting example of a token is WePower (WPR). Created on the Ethereum platform, WPR simply represents electricity. Each WPR token represents a certain amount of electricity, allowing users to buy or sell electricity on the blockchain.
Let’s look at a few other types of tokens and their function:
- Utility token- these allows people to access a product or service. A good example of a utility token is FileCoin. Ownership of the token allows users to access its decentralized cloud storage platform.
- Payment token- a payment token simply serves the purpose to pay for goods and services.
- Security Token- Most tokens in the market are security tokens because they have very similar characteristics to market securities. The buyers invest their money with the expectation of profits. Examples of security tokens include equity tokens and profit-sharing tokens.
By now, you should know the difference between a “token” or “coin”. So go be the smart one in the room and catch your friends using the terms wrong.
The main difference between a token and coin is that tokens operate on top of a blockchain while a coin uniquely belongs to its own blockchain.
Currently, 80% of all coins in existence are tokens, since they are much easier to create.
Liquefy is a token-issuance platform and it is spearheading the tokenization boom in Asia. Liquefy enables digitization of illiquid assets such as real estate, private companies, sports teams and more using blockchain technology. Together with Stan Group (with over HK$60 billion in assets), Liquefy is bringing the first prominent real-estate tokenization in Asia.