The Difference Between Coin and Token

When you become interested in cryptocurrency (digital currency), you’re sure to encounter technical terminology that you need to understand, specifically: blockchain, smart contracts, encryption, etc.

Behind cryptocurrency (digital currency) is a huge technical foundation, and therefore understanding is sometimes difficult to explain everything in simple words. In this article, we will explore and clarify the difference between Coin and Token.

What is a Coin?

Coin is a basic product of blockchain technology, such as: Bitcoin, Dash, Monero, etc. The blockchain is completely transparent, self-regulating, and maintained by consensus mechanisms, such as Proof-of-Work (PoW) or Proof-of-Stake (PoS).

Basically, a Coin is just information about your balance on the blockchain. A coin represents a unit, functions like currency, and has some value. It is a method of payment.

What is a Token?

Actually, the name “Token” already says it all. It is not a Coin; it is just a regular functional unit created according to existing blockchain standards, such as ERC20. In other words, a company issuing a contract on a Blockchain (like Ethereum) serves as fuel for operations within that company’s platform.

Below are some types of tokens:

• Commodity tokens (Digix, El Petro): these tokens are backed by real-world commodities, whether gold, silver, or oil. The exchange rate of these tokens depends on the exchange rate of the commodity behind them.

• Protocol tokens (Gnosis, Stellar): these are pieces of encrypted code necessary to access the protocols that a particular service uses, such as building DApps or decentralized exchanges for Ethereum.

• Security tokens (Tezos, Polymath): these tokens work like a company stock. Basically, with these tokens, you can own a portion of the company, just like in the stock market.

• Utility tokens (AWC, Golem): these tokens provide access to certain features of the services that issue them. For example, AWC is the utility token of Atomic Wallet used for bounty campaigns and registration. You can hold it to use features that will be released later.

• Collectible tokens (Cryptokitties, RarePepe): these tokens represent a virtual unit that can be collected, such as baseball cards, cute kittens, or funny images (memes). It is stored on the blockchain.

What is the Difference Between Coin and Token?

The main and fundamental difference between Coin and Token is that Coin works like digital money and has its own blockchain. Coin has its own infrastructure to maintain transactions.

Token is a parasitic unit conditioned on existing blockchains and used for specific functional purposes. For example, tokens created on the Ethereum blockchain have all token transactions take place on the Ethereum blockchain using GAS as the network fee.

Token Swap (Conversion)

Sometimes, projects based on tokens on existing blockchains move to their own blockchain mainnet to have more options and control over their currency, as happened with TRON. After moving, the token is separated and can be used as a unit of payment for specific purposes. This movement is called a token swap.

Where to Store and Manage Coins and Tokens?

In today’s cryptocurrency world, there are thousands of coins and tokens. The best way to store them now is on a hardware wallet. When you make transfers on a hardware wallet, you don’t need to enter a key and the key never leaves the device, thus avoiding key exposure. However, hardware wallets don’t support all types of tokens, so typically you must use a multi-functional software wallet to store those coins and tokens.