Is Bitcoin a crypto coin or a token? It’s a coin, right? Because why else would you call it a Bit-coin? Are all cryptocurrencies coins, then? Wait, what’s the difference between crypto coins vs tokens?
If you’re just starting your crypto journey, it’s easy to confuse the different types of crypto assets. For all practical purposes, crypto coins and tokens are very similar. The two terms are often used interchangeably in the crypto space, only adding to the confusion.
In this guide, we’ll try to help you better understand the main differences between crypto coins and tokens.
The Difference between Crypto Coins vs Tokens
For the most part, coins and tokens work the same way. Many crypto investors may not be aware, which of the two types of digital assets they own. However, crypto coins and tokens differ in some fundamental aspects.
A crypto token is a type of cryptocurrency that’s built on existing infrastructure such as the Ethereum blockchain. In contrast, the coin is native to its blockchain and essential to the blockchain’s operation. For example, the blockchain Ethereum has Ether (ETH) as its native crypto coin. Meanwhile, various tokens like BAT, Loopring, and BNT, to name a few, all operate on top of the Ethereum blockchain.
Simply put, almost every crypto coin has its own blockchain, while a token operates on top of a blockchain using smart contracts. Coins dominate in terms of market cap, but tokens are much more numerous. When it comes to functions, a coin mainly works like digital money, but a token can have various use cases.
What are Crypto Coins?
Crypto coins are digital assets enabled by cryptography. They represent an integral part of blockchain networks. Crypto coins serve as a store of value and act as the native currency in a specific blockchain system. Users trade coins in line with a fluctuating value influenced by market conditions.
Originally intended as an alternative to government-backed fiat currencies (like the US dollar), crypto coins essentially act as money. Many big corporations like Amazon, Tesla, and Microsoft now accept crypto as a form of payment. The all-time most famous crypto coin – Bitcoin, is even accepted as an official currency in El Salvador.
Examples of Crypto Coins
Pioneering cryptocurrency Bitcoin has remained synonymous with the term digital currency. You can mainly obtain BTC by mining or by purchasing it with fiat. BTC is undoubtedly one of the most recognizable crypto coins, but it’s surely not the only one. The term altcoins refers to all cryptocurrencies other than BTC.
Ethereum (ETH) is a cheaper and more flexible alternative to BTC. Ethereum is mined faster than Bitcoin. Creator Vitalika Buterina established ETH in 2015. The coin has since gained much attention, becoming the second most popular cryptocurrency in the world after BTC, with the second highest market cap. Contrary to Bitcoin, Ethereum has an unlimited supply making it subject to inflation.
Litecoin (LTC) dates back to 2011. Heavily inspired by Bitcoin, Litecoin runs on a Bitcoin codebase derivative. The LTC network processes transactions several times faster than BTC. Like BTC and ETH, Litecoin allows for anonymous online payment transactions and investment activities.
Solana (SOL) is one of the newer crypto currencies, considering that it officially kicked off in 2020. Solana’s issuance is capped at 480 million coins. The project focuses on enabling and making decentralized finance (DeFi) solutions widely accessible.
Dogecoin (DOGE) launched in 2013. Like Litecoin, it’s based on a modified bitcoin protocol. DOGE is also an inflationary currency, meaning the amount in circulation may increase.
Cardano (ADA) figures in the crypto space under the label “green cryptocurrency”. The network uses the proof-of-stake protocol, which is more energy efficient than the widely used proof-of-work protocol. Cardano’s ecosystem boasts flexibility and scalability. It aspires to become the most environmentally friendly blockchain platform.
Ripple (XRP) is the native cryptocurrency of the Ripple network, a protocol for processing payments on the blockchain. Ripple handles international transactions for hundreds of financial institutions. It aims to minimize costs and improve cash flow in the blockchain.
What are Crypto Tokens?
The term token has several meanings, all relevant to how crypto tokens came to be. In economics, a token is a numismatic object different from coins and banknotes. Examples include casino chips, vouchers, or gift cards. Tokens also exist in board games, serving as currency or points. With time, this concept of a token has entered the digital world.
Just like BTC or LTC is a virtual coin or digital money, a token is a virtual token. Its issuance is related to the tokenization process. Developers use smart contracts or codes to create tokens and enable token transactions.
How Crypto Tokens Started
Blockchain-based tokens actually started with the creation of Ethereum. Initially, there was no single standard for creating and issuing tokens in the Ethereum network. Each creator had to develop their own version of the features and specifications. Therefore, every token was unique, and the exchange of one for another required complicated coding.
In 2015, the Ethereum Requests for Comments standard was adopted, widely known as ERC-20. This set the foundations of the token infrastructure. Other ERC standards developed over time.
Tokens can act as money in that you can use them to pay for a type of service, usually a strictly defined one. While crypto coin transactions rely on the blockchain, token transactions are executed using smart contracts, allowing for fast, decentralized settlements.
Tokens often relate to a specific project. The creator usually issues the during an initial coin offering (ICO) process. A blockchain startup issues digital tokens and sells them to finance its project. When the funds collection is complete, the token becomes available on exchanges, and the team works on the implementation of the project, which often leads to creating their own blockchain. After this goal is achieved, the token becomes the coin of the appropriate blockchain. An example of this was the Binance Coin (BNB) token.
You can create tokens on multiple platforms such as Ethereum, EOS, and NEO. Each blockchain has its own standard. The most popular platform on which most tokens are based is Ethereum, and the most popular standard is ERC20. New standards have appeared, corresponding to the need for tokenization of securities, real estate, and the marking of collectibles.
ERC-20 is the most popular standard for creating tokens based on the Ethereum blockchain.
ERC-721 is the standard that defines non-fungible tokens (NFTs). Each token of this type is a unique, one-of-a-kind collector’s item. They most often represent value rather than goods, for instance, the law of value of real estate or art.
NEP-5 is the technical standard for running tokens on the NEO blockchain.
BEP-2 is one of the newest token standards that serves for building tokens on the Binance exchange blockchain.
Types of Crypto Tokens
We can distinguish between different types of tokens based on their uses and how they work. The most popular types of crypto tokens include:
Most tokens are utility tokens. They usually have a wider range of use cases than security tokens. Utility tokens have value, but issuers don’t create them for investment purposes. Often issuers offer these tokens as incentives to the users of a specific network, like discounted transaction fees on crypto exchanges.
Many of them are ERC20 tokens that give the holders a certain right. They can also serve as a form of payment and users can exchange them for services on the platform. Examples include exchange tokens like FTX token or the Brave browser’s Basic Attention Token (BAT).
Generally, utility tokens are distributed during the Initial Coin Offering (ICO), a popular fundraising method for startups in the blockchain space. During the ICO, investors buy tokens for fiat currency or other cryptocurrencies.
A security token works as a traditional asset in that holders receive the same rights and obligations as in purchasing a traditional instrument from brokers. The security token is a tokenized or digital version of a conventional asset. Moreover, these tokens are designed with investment in mind and are subject to the same regulatory oversight as traditional instruments.
Issuers distribute security tokens through security token offering (STO). Unlike ICO, STO takes place in a regulated environment. Companies must register STOs with the relevant regulators and comply with all legal requirements. STO participants must also receive accreditation to buy and sell security tokens.
Security tokens are strictly regulated in many jurisdictions, including the United States and Germany. Many investors from traditional finance opt for security tokens as their initial venture into DeFi and cryptocurrencies. Examples include stablecoins, Blockchain Capital (BCAP) and INX, which was the first blockchain-based security registered in the US.
NFTs are some of the most popular types of tokens today. Each token represents ownership of a specific asset, such as art, digital property, or rights to a specific real-world physical object. NFTs don’t have any fixed value, and each one is unique.