Whenever you come across cryptocurrencies, you must have seen the debate of Coin vs token. While they both are the blockchain cryptocurrencies, there is a difference between coin and token. This distinction is important when considering to build one of these.
What is a coin?
Coin is usually a piece of metal with an official stamp which is officially governed and controlled by the government and that piece of metal is used as a currency. While in terms of blockchain, coin is a digital currency which is powered by its blockchain.
Blockchain ledger is like a database and each of the nodes has access to this database. A full node is basically a device (like a computer) that contains a full copy of the transaction history of the blockchain. The way the nodes communicate with each other is dependent on a set of rules called Protocol.
Having a coin being powered by its blockchain has a huge significant impact on the coin. Having its own protocols inherits the coin with a high level of independence and flexibility. Company or an individual behind the creation of a coin can define every aspect of cryptocurrencies such as supply, consensus mechanism, transition fee. The coins which follow the bitcoins are known as altcoins. Some studies say that there are more than 4,000 cryptocurrencies present and are variations of bitcoin. Some of the examples are:
What is a token?
Tokens which can also be referred to as crypto tokens are units of value that blockchain-based organizations or projects develop on top of existing blockchain networks. While they often share deep compatibility with the cryptocurrencies of that network, they are a wholly different digital asset class.
There is a major difference between cryptocurrencies and tokens. Basically tokens are built on top of the blockchain environment while coins are native to their blockchain. Tokens are usually defined by smart contracts which are built on top of blockchain.
Difference between Coin and Token:
There are major differences between coin and token. One main difference is stated above while there are other major differences as well.
Coins and tokens follow two different algorithms and quite clear distinctions can be made.
- Coin: A coin is based on its own blockchain
- Token: A token is based on the smart contract built on top existing blockchain technology.
Different Utility Purpose:
A good example is MAKER. This is based on the ERC-20 based on smart contracts. ERC-20 is a standard used for creating tokens (besides eth) that can be exchanged with one another. All the tokens built on Ethereum blockchain will follow the standard of ERC-20. People use this blockchain technology to create applications on the Ethereum blockchain and give users their native token for using the application. Usually depends upon the application. For example if it’s a decentralized exchange like PancakeSwap, the users of the application would get CAKE as a native token.
Different fee’s system:
A coin can be traded on its own with little or no expenses during trading. While on the other hand, when you trade a token, you must pay a fee to the network on which it is built. Every action on the Ethereum platform necessitates the payment of a cost in Ether, which is referred to as gas.
Coin vs token- Which is better to invest in?
By now, you should be able to tell the difference between a coin and a token. Coins and tokens, on the other hand, do not replace one another; rather, they serve different purposes. If the main purpose of the project is to develop cryptocurrency and/or build a platform based on it, or offer a new financial system, then the coin is the best option.
Crypto tokens, on the other hand, are cheap, fast, and easy to develop. They require no maintenance but come with dependence on the main network, which gives little to no flexibility. Tokens may work as side projects that bring funds to the main business.