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Many people think that the word “coin” and the word “token” are interchangeable and that they are synonyms to each other. But these two words are entirely different in real-world use cases and concepts. So what is the difference between both? What is the reason behind the ambiguity between these two words? Let’s discuss it briefly!
With the expansion in the cryptocurrency world, the introduction of new words has led to ambiguities and misuses of them. Almost all of the coins and tokens are cryptocurrencies (or at least considered cryptocurrencies). In the eyes of the general public, it does not matter if they circulate in the form of currency or not.
Currency is a mode of exchange or a stored value representing the primary unit of account. Bitcoin follows all these terms, so it is a cryptocurrency in this scenario. All the coins or tokens launched after the introduction of Bitcoin are accordingly cryptocurrencies by default. But not all these coins or tokens fulfil the essential criteria mentioned above. This confusion explains why inexperienced new joiners who want to buy coins are often happy to get tokens.
Coins (sometimes called “cryptocurrency coins” or “crypto coins”) are digital currencies developed with the implementation of encryption methods, used to store value over time. Typically, this type of digital money is equivalent to original money. Bitcoin is the perfect example of a coin created on the basis of blockchain – a distributed public ledger to store and monitor all the transactions. The record is stored together and shared among the participants over the blockchain network. Blockchain maintains transparency among the users while eliminating the chances of fraud in the transaction. There are also coins created on the protocol of Bitcoin and open-sourced to the public such as Litecoin. In addition, some coins worked on the concept of blockchain and developed a blockchain especially for the coin. Ripple and Monero are examples of this method.
Cryptocurrency coins are more like money. They are divisible, acceptable by almost anyone, portable, long lasting with limited circulation or supply. Some digital enthusiasts think that in the future, the cryptocurrency coin will replace the traditional conventional money (the fiat currency). Some of the main features of cryptocurrency coins are:
- They have a blockchain. The blockchain is open to the public. It means anyone can become the part of the network and perform transactions.
- You can send cryptocurrency coins to others, receive them from others, or mine them.
- They can do many actions beyond working as conventional money.
Tokens launch through a project and fall under the category of a digital asset. You can use it as a payment method for the project. It works in roughly the same way as Bitcoin. The only contrast between both is that tokens provide direct accessibility for a holder to contribute in the network. As a digital asset, it assists in various ways. It can be an ownership right to a company, or provide access to a certain network etc. Upon launch of a new project, different unknown functions of tokens sometimes appear.
Let’s understand it more clearly with an example, suppose you have a ticket to a baseball tournament. Let’s compare it with a real-life token. You can use a real-life token at a particular place, i.e., stadium and at a certain time (during a tournament). You can not go to the movie and pay with this tournament ticket- because it is only valid at the stadium. Digital tokens are much alike baseball tickets in this regard – they both have a specific use for a specific project/event.
Tokens refer to an asset or a utility. So both token types, i.e., security tokens and utility tokens are different. Furthermore, to briefly understand the core structure and technical mechanism of cryptocurrencies and multi-chain blockchain platform, you can go through the Blockchain Certification which will guide you to set up your own private Blockchain and deploy smart contracts. The program offers the real world projects for greater understanding.
Launching a token is much more comfortable in comparison with a cryptocurrency coin because you don’t need to write a new program, you can edit the existing one. For instance, you can use the template of Ethereum or Doge and provide accessibility to anyone by creating a new token.
Finally, the critical difference between tokens and coins comes from their structure. Coins are specific currencies with their own blockchain. You can use interoperable tokens, however, for creating decentralised applications.
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