You want to open up your own business, and you're looking for a place to set up shop!
You could purchase some land, hire a construction crew, build a structure, furnish it appropriately, employ a bunch of people, and start running your business.
In a way, this is like establishing your own coin.
Another way to do could be to lease out a building in an existing mall and run your business there.
That is like launching a token.
What are the key Differences between Coins and Tokens?
The most basic difference between a coin and a token is their underlying blockchain structure.
Coins have their own independent blockchains, while tokens are built on top of existing blockchains.
Since coins are usually essential for their networks to operate properly, they're usually launched along with the blockchain itself - vs. tokens, which are made on already existing blockchains.
For example, Tether's USDT token is actually an Ethereum token. It does not have its own blockchain but instead piggybacks on the Ethereum network to function.
Tokens do not have to be limited to just one blockchain, either. For example, USDT is not only an Ethereum token, but it can also operate on the Tron network.
Another key difference is that tokens are often associated with smart contracts.
Smart contracts are self-executing pieces of software code that run on a blockchain.
Developers can create tokens using smart contracts for various purposes, such as in-game tokens on gaming-focused blockchains such as Enjin. Players can then earn these tokens by taking part in the game.
How are Coins Unique?
Coins are rooted in their core blockchain protocols, meaning they exist at a deeper layer than tokens and smart contracts.
The last difference between coins and tokens is in their specific uses and functions within their platforms.
Coins usually serve vital functions for the platforms they belong to.
Ethereum, for example, would not be able to function without Ether - its native cryptocurrency.
One of the reasons is that the people who maintain the blockchain, known as validators, are rewarded for their work with Ether. Without it, these validators would have no incentive to participate, and the network would be at risk of collapse.
Ether is also required for transaction fees and the execution of smart contracts.
In another example, Bitcoin, while primarily serving as a store of value, can also be used as a medium of exchange for transactions.
In both cases, the coins serve crucial functions, making them essential to the systems they belong to.
Tokens, on the other hand, may not always have as significant an impact on the blockchain they are built on.
For example, the Axie Infinity token is an Ethereum-based token, but its purpose is limited to the game itself. It has nothing to do with the stability and regulation of the main Ethereum network directly.
Tokens often have specific use cases within the projects or decentralized applications they are part of, rather than being vital to the overall function of a blockchain.
What are some Major Purposes for a Token?
Tokens can serve various purposes within the cryptocurrency ecosystem.
One type of token is a platform token.
These tokens, such as Uniswap's UNI token, support the overall functioning of the blockchain network they are built upon.
In addition, UNI functions as a governance token, giving holders the ability to vote on decisions affecting the Uniswap platform. Solana's SOL token is another example of a governance token.
Another type of token is a transactional token.
As you can probably guess, these tokens facilitate transactions within the ecosystem.
For example, Tether is often used on cryptocurrency exchanges for transferring funds, paying fees, and purchasing other coins or tokens.
One more type of token is a utility token.
These tokens provide value by offering specific functions or use beyond governance and transactional purposes.
The Axie Infinity token, as mentioned earlier, is an example of a utility token. Enjin's Ethereum-based tokens are another example; users can use them to create their own tokens, purchase in-game items, and access other features.
So basically, tokens can be designed to take on a wide range of roles within their projects, and offer pretty diverse utility to users and developers.
Conclusion
So today you learned the basic differences between coins and tokens lie in their underlying blockchain structure.
They also differ in the way they interact with smart contracts, as well as their specific uses and functions on their platforms.
You saw that coins operate on their own independent blockchains and play vital roles in maintaining and securing their networks.
Tokens are built on existing blockchains and usually serve specific purposes.
Both coins and tokens contribute a lot to the cryptocurrency landscape, offering utility to both users and developers.
If you can understand these differences, it’ll help you navigate the world of cryptocurrencies more effectively and make better-informed decisions.
Good luck out there!
