Cryptocurrency coins and Cryptocurrency tokens are often used interchangeably to refer to the same thing, but they are actually different items in the overall crypto ecosystem.
What is Cryptocurrency?
A cryptocurrency is the native asset of a blockchain network that can be traded, utilized as a medium of exchange, and used as a store of value. It is issued directly by the blockchain protocol. This is why it is called the blockchain’s native cryptocurrency.
Crypto Token vs. Coin: What’s the difference?
What is a Crypto Coin?
BTC, LTC, ETH…
Cryptocurrencies are divided into two categories: coins, which are supported by their own blockchains; and tokens, which are created as part of a platform that is built on an existing blockchain. Therefore, a crypto coin is an asset that is native to its own blockchain. Examples include Bitcoin, Litecoin, and Ether, as all of these coins exist, operate, and function on their own blockchains. That is what makes them a coin and not a token.
What is a Crypto Token?
ERC-20, Basic Attention Token, USDC…
On the other hand, as mentioned above, tokens are created on existing blockchains. For example, you can have tokens that are built on Ethereum. These are known as ERC-20 tokens, which are blockchain-based assets (like coins) that have value and can be sent and received. The reason why they are not called “coins” is that instead of running on their own blockchain, ERC-20 tokens are issued on the Ethereum network.
What do coins and tokens do?
Cryptocurrency coins and tokens have many applications when it comes to decentralized payments and the metaverse. Tokens in particular have opened up many avenues that will increase the execution and practical use of DeFi based applications (dApps) and smart contracts. Tokens are what are used to interact with these decentralized applications and to facilitate transactions.
Moreover, many crypto exchanges and organizations have started creating their own platform tokens. They do this with a specific business model in mind to encourage user interactions like trading, voting on key business decisions, making technical changes to the platform, and as a form of reward distribution to the network participants. This is why tokens come in the form of reward tokens, currency tokens, utility tokens, security tokens, and asset tokens.
Therefore, tokens offer a different level of functionality that is distinct from that of coins, which are used for making or receiving payments on a blockchain, et al.
Cryptocurrency coins are what led to the decentralized finance boom. This is because they allow for a more convenient peer-to-peer payment system outside of using cash. At the same time, they have attracted many investors worldwide. However, cryptocurrencies are more than just forms of digital cash or investment options. They are increasingly important for the blockchain’s continuation, as Bitcoin and Ether are needed to keep the network running.
Tokens on the other hand can be used by people for many more reasons. They can be used for trading, holding as a store of value, and as a form of currency. Both these forms of crypto will surely see lots of expansion in the ways they are used moving forward.
Stay tuned for more Phemex commentary on these two subjects!