You hear about them both all the time. Coins and tokens. But what is the difference?
Both are cryptocurrency, as the definition of a currency is a unit of account, a medium of exchange or a store of value. But the main difference is the underlying technology.
A coin is mainly the native medium of exchange on a blockchain. A coin usually has their own blockchain. For example bitcoin on the Bitcoin blockchain, Monero on the Monero Blockchain etc.
To summarise a coin – It is a cryptocurrency that works independently from any other platform
Tokens, on the other hand, do not have their own blockchain but instead exist on top of another coins blockchain. Tokens are very commonly created on the Ethereum Blockchain due to its popularity and simplicity. Tokens can be used for many other purposes than coins. For example, you could use tokens to distribute shares in your company, where every token holder would get a part of the company’s profits each year. It could also be used as a means of loyalty points, paid out to customers with their purchases in your stores. Which later can be used to pay for items in your store.
To simplify a use case for tokens, you could view them as loyalty points for an airline. For every coin you spend on the airline, you get some loyalty points or in other words, tokens.
These tokens can later be spent on another trip with the airline or used to buy food on the plane. What if you needed just a couple of thousand loyalty points more to buy that next trip to Hawaii? You could swap some of your grocery store tokens for some airline tokens with another person. This reason alone makes tokens way smarter than your regular loyalty points system since tokens natively can be exchanged between accounts.
To summarise a token – It is a cryptocurrency that requires another platform to exist and operate. Usually has more of a utility use than just a means of exchange.
Creating tokens is much easier than a new coin. As you don’t need to create a new blockchain or fork an already existing one to get started with a token. On CoinMarketCap you can filter out the tokens from the coins, which also reveals that 33% of all cryptocurrencies traded are tokens. However, tokens do not necessarily need to be traded on exchanges. Which means that there probably are a lot more than we would ever see available for trading.
More on creating your own token in another post!
If you have yet to start with cryptocurrency, check out our beginners guide today!