Crypto Tokens vs Coins Whats the Difference?

Using smart contracts, tokens can have specific burn functions or conditional events attributed to them, creating a unique experience for their holders. In short, dapps and blockchain apps became a reality thanks to smart contracts and the tokens issued using them. When one knows the fundamental difference between tokens and coins in crypto, evaluating whether Bitcoin is a coin or a token is straightforward. Several cryptocurrency projects have been inspired or modeled after Bitcoin, the first cryptocurrency coin. Ethereum, for instance, popularized smart contracts that run if certain conditions are met, expanding on the concept of a decentralized currency. Therefore, it is not native to a blockchain but can be native to a specific decentralized project or app (otherwise known as a DApp).

While cryptocurrencies exist upon consensus mechanism and are used as incentives, tokens may have wide usage and utility and go along with smart contracts. When it comes to the difference between the two, Cryptocurrencies can be defined as the native assets of blockchain, just like Bitcoin, Ethereum, etc. On the other hand, tokens are built on existing blockchain architecture using smart contracts, which are mostly EIP-20 tokens.

The Ethereum blockchain, for example, uses specific tokens to manage and implement all its smart contracts. These tokens, called ERC-20 tokens, require developers to comply with certain requirements to create and operate dapps. Users can trade these tokens, but their larger purpose is to standardize Ethereum network use and scale usage off the main chain. See, coins are integral to the security of a blockchain and incentivize participant’s good behavior.

Unlike crypto coins, tokens aren’t mined; they are created and distributed by the project developer. Once tokens are in the hands of purchasers, they can be used in countless ways. This type of cryptocurrency has specific functions, like supporting a certain blockchain or smart contract platform. For example, you can use LINK tokens to make purchases or perform operations on the Ethereum blockchain. While cryptocurrencies may seem overwhelming at first, it’s undeniable that blockchain technology is making the whole concept of “being your own bank” completely possible.

Cryptocurrencies are available as in-built logic in the blockchain protocol. Therefore, you can identify that cryptocurrency units are integrated into protocol of the blockchain software only. Most blockchains create, transfer, and destroy tokens using smart contracts. Generally, these smart contracts adhere to “token standards” like Ethereum’s ERC-20 for fungible tokens (e.g., altcoins) or Binance Coin’s BEP-721 for non-fungible tokens (NFTs). Cryptocurrencies and tokens are integral to decentralized finance (DeFi) and the Web3 revolution. However, despite their superficial similarities, they serve different purposes within the blockchain ecosystem.

  • Conversely, if you’re assessing the potential value of a token-based project, it helps if it’s supported by a highly respected blockchain such as EOS or Ethereum.
  • Since smart contracts allow for digital asset transfer with conditions, tokens can have in-built rules.
  • Nicole Willing has two decades of experience in writing and editing content on technology and finance.
  • Tokens are created according to the tokenization standards of hosting blockchain.

Coins are cryptocurrencies native to a blockchain and crucial to its working. Cryptocurrency tokens are enabled by smart contracts that operate on an existing blockchain platform and can be traded like cryptocurrency coins. The term cryptocurrency refers to a class of digital assets that rely on cryptography and blockchain technology. Indeed, the feature that ties all cryptocurrencies together is their reliance on blockchain networks.

The Big Debate: Will Ordinals Change the Purpose of Bitcoin?

Stellar USDC provides users with a fast, cheap, and easy-to-use alternative to other USDC enabled blockchains. This feature is currently accessible via the Coinme wallet in your web browser, and is coming soon to the Coinme mobile apps. If you want to start lending, borrowing and more, then why trust a service that retains custody over your assets? Using blockchain technology, as long as you have a non-custodial wallet, saves you this worry. A good example of an Ethereum token is SAND, the currency of blockchain metaverse, The Sandbox.

Cryptocurrencies can serve as a store of value, as you can notice in the example of Bitcoin. It focuses on offering an efficient alternative to conventional banking by enabling decentralized transactions. Cryptocurrencies and digital assets are the biggest trends in the tech landscape right now.

Creating a coin is obviously more difficult than creating a token, so a blockchain can have only one coin, but hundreds and thousands of tokens built on it. The blockchain is a decentralized system, where data is protected by the numerous computers that connect to its network and run a node. The computers connected to the network secure the blockchain by validating blocks.

Crypto Basics: Coins vs. Tokens

In simple terms, you can think of cryptocurrencies as limited-use entities and crypto tokens as the flag bearers of opportunities in decentralization. For example, crypto tokens can open up new roads for representing physical assets on blockchain networks. Learn more about the crypto world and how digital assets will evolve in this space in future.

Tokens are one of the most creative innovations that have risen out of the evolution of cryptocurrencies. As blockchain and cryptocurrency use cases progress, tokens will as well. Security tokens eliminate the delays and fees that are typical of brokerages. Owners of governance tokens can vote on decisions within various decentralized finance applications (dApps). A popular example of a governance token includes decentralized exchange Uniswap’s token (UNI). Voting topics can include fee prices, upgrades to the network, and reward quantities.

When assessing a crypto asset, it’s essential for you to do your research and due diligence to make the best possible judgement, as any purchases shall be your sole responsibility. Today, multiple blockchains support fungible and non-fungible tokens, such as Solana, Cardano and Tezos. Tokens are created according to the tokenization standards of hosting blockchain. Thus they can smoothly exist within the network, being transferred and stored in supporting wallets.

There are also non-native layer-2 blockchains that derive their security from a native protocol. Examples of Ethereum layer-2 blockchains include Polygon, Arbitrum, and Optimism. Other examples of crypto coins include Litecoin, Dogecoin, and Ethereum.