The astonishing rise of the cryptocurrency industry over the past two years has attracted many people – investors and bystanders alike. While some saw a lucrative opportunity to make money relatively quickly, others took a more patient approach by reading and understanding the company. Being a new industry, it brings a lot of new terms to refer to digital assets and people often use them interchangeably.
For example, many believe that cryptocurrencies and tokens are the same thing. However, they are not. At a basic level, all coins are considered tokens, but not all tokens are considered cryptocurrencies.
Why is that? What are the factors that determine what is what? For beginners in trading, the usefulness of crypto can help distinguish between a coin and a token. Here are the main differences:
– A coin usually comes from a blockchain and is used to trade currencies and store value. A token is quite similar, but it tends to use a different coin’s blockchain. Consider, for example, Ethereum, a blockchain. The original currency is Ether. However, several other tokens such as BAT and Loopring operate on this blockchain.
– Coins directly represent a suggested medium of exchange. Tokens, on the other hand, represent an asset. The tokens can be held for value, or traded and staked to earn interest. Some examples of tokens are Uniswap, Chainlink and Polygon.
– Crypto currency transactions are handled by blockchain and tokens rely on smart contracts for trading.
– When a token is issued, it moves from one place to another. For example, NFTs (no-fungible tokens) are unique items, so the change in ownership has to be handled manually. A coin does not need to be moved from one place to another. All transactions are recorded on blockchains.
– Simply put, a token represents what a person owns, while a coin represents what he can own. In addition, everyone has used a token at least once in their life, even if it is not in this form. For example, your car title is a token. When you sell the car, you transfer the value of the title to someone else. You can’t buy anything else with that title, though.