Suppose you are a newbie in the digital world of cryptocurrency. In that case, you might probably have already come across various technical terms that are essential in learning the ins and out of this exciting platform. However, you should never expect to get rich overnight. Trading is a skill you have to master to achieve success. That said, do familiarize yourself with various terms necessary for your crypto journey. The most common terms you will come across are coins and tokens. So, what is the difference between crypto coin and token?
Although many traders use the terms interchangeably, there are differences between the two. This article will provide you with a clear definition and differences between the terms coins and tokens.
To understand what the difference between crypto coin and token is, let’s start with defining what a coin is. The most important thing you should know about digital coins is that they are created with their blockchains. The most popular coins on the market today are Bitcoin, Litecoin, or Ether. They all have their specific blockchains.
When you trade using your crypto coins, there are no physical coins that come into play. Instead, these coins are a part of a giant global database, also known as a blockchain. It keeps track of all your movements and transactions and is connected to various computer systems globally.
How to Use a Crypto Coin
A digital coin works in the same way as physical money. These coins are generally used to transfer or exchange money, store value for future trades, and as an accounting unit since you can use them to price goods and services.
Generally, crypto coins are used for monetary purposes only. You can’t use them to earn more crypto coins or to operate specific applications. However, some digital currencies provide more services than just merely monetary.
For instance, Ether (ETH) can be used for various processes on the Ethereum platform. On the other hand, NEO allows you to earn a dividend when you stake it in a wallet. It can also be used for sending tokens on the NEO network. Lastly, Dash allows investors to make upgrades on the network by letting them decide through votes. This system enables holders to have a hands-on experience on the Dash network evolution.
To further your knowledge of the difference between crypto coin and token, let’s now talk about crypto tokens. You might think that tokens are the same as coins. However, that’s not true at all. Tokens are generated from existing blockchains. They can be customized, depending on the crypto platform you’re using.
How to Create Tokens
If you have basic programming and technical skills, creating your tokens isn’t as complex. It also does not take much time to complete. However, you must spend some of your crypto coins on the blockchain to validate the token to do so. Also, do note that certain fees need to be paid when doing token transactions.
The Difference Between Coins and Tokens
After defining both terms, let’s delve into the specifics on the question, what is the difference between crypto coin and token?
The main difference between the two is the blockchain. Coins are built on their own, while tokens depend on existing blockchains. Also, coins are limited to monetary transactions. On the other hand, a token can be used for other purposes, such as accessing products or services.
Tokens vary in type. The most common ones are security tokens, asset tokens, stablecoins, and non-fungible tokens. Security tokens represent company shares, while asset tokens require real-world assets such as gold or real estate. Stablecoins, on the other hand, provide more stable currencies like dollars or euros. And lastly, non-fungible tokens are used to access unique virtual things such as arts, virtual pets, and game-in items.
Benefits of Tokens
Since tokens rely on existing blockchains, most developers can save time and resources. These tokens can still act as a crypto coin with the security of a blockchain. So many prefer to develop their tokens to be used in crypto transactions. Generating coins also require miners for transaction verifications. With tokens, you can skip this step while enjoying the benefits of a crypto coin.
Blockchains require various miners to prevent them from being attacked. That’s the reason why developers share blockchains instead of creating one. Developing blockchains also need a long and expensive process to complete. Discover more trade secrets in cryptocurrency here!
Many traders often confuse the terms coins and tokens. Thus, understanding the difference between crypto coin and token is essential in your journey towards cryptocurrency trading. In a nutshell, coins are developed with their blockchains. In contrast, tokens depend on existing ones to generate. Coins are also used for monetary purposes only, while tokens can be used for other purposes such as acquiring services.
Cryptocurrency is a big industry that attracts investors from all over the globe. If you intend to become a part of this trend, then do take time to understand the various terms and processes involved.