In the cryptocurrency world, it is common for people to use the words “token” and “coin” as indistinguishable like they mean the same thing when, in fact, they are different. These are two terms used to identify the units of value on the blockchain network, and while the terms are used interchangeably, it is essential to note that there are differences that tell them apart.
Form versus Function
If you are considering it from a broad spectrum, then a crypto coin functions as a mode of payment, while the token is tied with more functionality. Primarily, a coin’s purpose is to work like money to facilitate payments and transactions, either as account units, medium for transfers, or a store of value.
Tokens have value, but their value is tied to their functionality on the blockchain where they are hosted, and thus they cannot be seen as an alternate means to make payments or facilitate transactions just as coins are. Tokens bring functionality to the table, and that is one thing that many coins do not offer.
Coins are designed to run on their native blockchains, while a token may be seen as the opposite because it runs on a different blockchain. Examples of coins include Bitcoin, Ethereum, Monero, Litecoin, etc. Examples of tokens include those tokens created for various applications on the ERC-20 platform powered by Ethereum.
From the above, we can see that coins facilitate transactions and payments, while tokens have diverse uses, including the following:
- As Security Tokens: These could refer to a company’s shares that are backed by the blockchain technology and function just like securities in the traditional financial industry.
- Non-Fungible Tokens: These are tokens that are used to represent unique items like baseball cards, art, exchange of in-game items, etc.
- Stablecoins: Stablecoins refer to tokens that have some stability in value and usage based on fiat currencies like the US Dollar, unlike Bitcoin and other coins whose value keeps fluctuating and are not stable.
- Asset Tokens: These are tokens that are tied to assets in the real world, backed by assets like real estate or gold.
It may interest you to know that there are some instances where tokens bring value to their investors, and this further away than speculative returns; an example of such token is the ChronoBank TIME token. In some other cases, the tokens function as a way to contain votes by the relative crypto community on essential decisions within the community, including possible technical upgrades to the blockchain platform.
There may be a few blurred lines when it comes to clearly define both terms, considering that both coins and tokens are used as means for value transfer, as well as for transactions and payments, just as shares and fiat currencies are used as modes of rewards when people work.
Perhaps in the near future, the terms would evolve just as the technology evolves, and then we may be able to get precise definitions for them.