Tokens Vs Cryptocurrency Coins: A must-read primer for a cryptocurrency enthusiast
In the cryptocurrency industry, the terms “coins” and “tokens” are frequently used interchangeably, but they actually relate to separate ideas. This article will describe the distinctive qualities that distinguish coins and tokens from one another.
A cryptocurrency that is native to the blockchain it uses is referred to as a coin. As alternatives to or better iterations of Bitcoin and other existing public ledgers, numerous blockchains are built from the ground up. Even with an open-source blockchain that has already been established, creating a blockchain still takes time and requires some level of technical knowledge. It is difficult to establish a coin because you cannot produce a coin without creating a blockchain. Bitcoin, or BTC, is a prime illustration of a coin. It is used to pay network transaction fees and is powered by a separate blockchain with the same name. Since Bitcoin (BTC) was the first widely used cryptocurrency, subsequent coins are referred to as altcoins, or alternative coins.
Without exception, every cryptocurrency uses its own blockchain to operate. Coins are native cryptocurrencies that are active on their original chains as well as on their forks (new chains produced as a result of protocol updates). As an illustration, when Bitcoin divided into Bitcoin and Bitcoin Cash, BTC continued to be the native token of the original chain while BCH, a brand-new coin, emerged on the forked chain. Coins can serve as digital money because they possess the characteristics of traditional money, such as security, scarcity, longevity, mobility, and a capacity to hold value.
The majority of blockchains use a method called mining to create new currency. The network users who approve transactions receive brand-new coins as payment. Users also pay a network charge each time they conduct a transaction on the network, which is used to purchase rewards. Although there are many other methods for confirming transactions, proof of work (PoW) and proof of stake are the most popular (PoS). PoW networks’ validators utilize colossal amounts of processing power to validate transactions. Staking coin holdings is necessary for the PoS technique to validate transactions.
A token is a digitally stored unit of value that stands in for an object or service. Tokens, unlike currencies, are issued on top of existing networks and do not have their own blockchain. Tokens are not mined during the transaction validation process like coins are. They are instead minted. The total quantity of tokens issued is subject to the requirements that the issuing project has specified. Tokens can serve a variety of functions. They may be employed to provide access to specific services or to raise money. Some tokens can even serve as a substitute for coins on another network. These tokens, sometimes known as “wrapped tokens,” move in lockstep with the value of the underlying asset. A stablecoin, for instance, is a form of very well-liked token that tracks the price of the US dollar.
Always existing blockchains are used to create new tokens. Utilizing specialized, ready-made solutions for token creation is the simplest option. You don’t need any coding knowledge to use these platforms. It might be as easy as using a website builder to make your own website. However, additional technical knowledge will be needed to create a token with complex characteristics. You must first install a smart contract.
For fundraising, cryptocurrency businesses frequently employ tokens. Typically, an initial coin offering (ICO) is used for this, in which coins are offered to investors. Tokens are the project’s currency now that it has launched, giving users access to a range of benefits. The fundamental advantage of a token is that it avoids the need for additional blockchain development. Instead of concentrating on the technical aspects of a public ledger, the startup may instead work on building its platform. Additionally, users are not required to adopt new non-custodial wallets or behaviors. The asset tokenization that tokens enable is another benefit to the crypto world. They create a more frictionless market by being able to represent any currency or assets across blockchains.
In conclusion, determining if a cryptocurrency has a blockchain or not will allow you to determine whether you are dealing with a crypto coin or token. A coin is one that runs on its own blockchain, whereas a token runs on an existing blockchain. Coins are typically used as a form of payment, whereas tokens have a wider range of applications. They may serve to represent an asset, provide access to special services, or even a work of digital art.