If you are not immersed in crypto, separating tokens and coins may be difficult. To laymen, they may appear to be synonyms, but in the cryptocurrency landscape, they have different uses. In fact, from their very creation, they are different digital assets. So, before you attempt to build wealth with cryptocurrencies, you will need to be able to differentiate them.
In this blog, we will explain the differences between coin vs token to ensure you use them correctly. To start with, we will need to explain what these words mean.
Understanding Coins
Coins such as the infamous ‘Dogecoin’ are digital assets that work or ‘operate’ in their own blockchain. This blockchain is independent of others and has its own security measures and methods of recording transactions. These records are ledgers.
You can exchange coins online the same way you exchange money. So, they facilitate the sending, receiving, and processing of exchanges. Like digital money such as in a bank, these coins are divisible, portable, and there is a limited supply of them.
Understanding Tokens
Tokens are digital assets like coins. However, tokens do not have their own independent blockchain, and they act as a representation of another asset. Instead, they require existing ones such as Ethereum. Depending on the tokens you have, you can carry out a variety of activities, including making payments and accessing services.
The following are examples of tokens:
- Security Token: This token is a digital representation of a security such as a bond.
- Utility Token: With this token, you can access a service or function of the platform.
- Non-Fungible Token: When you need to authenticate ownership of a digital asset, you can use these tokens. It works by recording the exchange of ownership in the life of that asset.
- Governance Token: Some platforms have this type of token to give out to those they give the right to change the protocol.
What Is the Difference between a Coin and a Token?
As you now understand, these two digital assets operate in different ways and have different uses. Yet their differences do not end there. They also have the following differences:
Creation
The way you create these digital assets is different. Reports indicate that when Satoshi Nakamoto created Bitcoin ― the first coin ― in 2009, they had to ‘mine’ or solve complex problems to secure the blockchain. Even in the modern day, mining is a complex process that requires time and knowledge.
In comparison, tokens are much simpler to create. In fact, you can create them on already existing blockchains.
Volume
Another difference between coin vs token is that they have different volumes and sources of distribution. On the one hand, tokens have a low trading volume and originate from project developers.
On the other hand, coins have a controlled supply yet vast volumes. According to reports, there are over 20,000 coins in existence. Although, of this large number, only 20 of them take up 90% of the total market.
Liquidity
When you compare coin to tokens, liquidity stands out as a major difference. Since coins have greater trading volumes, they are convenient for large transactions. In fact, they are also faster in trade.
Meanwhile, tokens are less liquid since they have lower trading volumes and can only operate on certain blockchains.
Regulations
Lastly, these digital assets have different regulations. Across the world, governments regulate them differently, if they even create laws on this subject. In the US, tokens are regulated. Therefore, they must be registered as securities, although the government may make an exception depending on their use.
Meanwhile, there is no federal regulation on coins. Nonetheless, it is possible that in the future, the US government will regulate coins like money or other financial assets.
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The Takeaway
Now you know that the major differences between coin vs token is their use and creation. Coins require effort to make, ensuring a slow yet steady supply. Nevertheless, coins are extremely liquid and facilitate transactions. Meanwhile, tokens are fairly easy to create and can have a variety of uses from proving ownership of digital assets to accessing services.
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Frequently Asked Questions
Is Bitcoin a coin or a token?
Bitcoin is a coin—in fact, it is the first cryptocurrency. Its decentralized nature and strong security have preserved its well-known status.
Can a token become a coin?
In a way, tokens can become coins. For instance, a token can become a ‘stablecoin’ and record transactions just like coins do. In addition, tokens can hold the value of another coin. So, you could have a token that has the value of 10 Bitcoins. However, you could only trade this token on its particular blockchain.
Is ETH a token or a coin?
ETH is a coin for the Ethereum platform. Its value is around 2,600, over 60% more than its value in 2023. The tokens created on Ethereum are ‘ERC-20’.