Crypto in an Hour: Part 6 – Coins & Tokens

by | Dec 10, 2019

When people talk about cryptocurrency, they often use the term coin. On the other hand, you might have heard people talk about tokens when referring to a cryptocurrency. Some people confuse the two terms while other use them interchangeably. What’s the difference? A good way to clear up the confusion is to run through a couple of definitions. Let’s start with the word “cryptocurrency.”

A cryptocurrency is a digital currency using blockchain technology to encrypt transactions, making them more secure. A fundamental trait of cryptocurrencies is the concept of decentralization. In other words, transactions using cryptocurrency happen between two people, or peer-to-peer. The current model of transaction has money moving from the buyer to the buyer’s bank to an automated clearinghouse to the seller’s bank to the seller. In a peer-to-peer network, there is no place for a government or large corporation to control or interfere with the transaction.

A coin is a store of value or a method of exchange maintained by its own independent blockchain. While Bitcoin wasn’t the first digital currency, it was the first to use a blockchain. Beside Bitcoin in the category of coins are Altcoins, or simply an alternative coin to Bitcoin. There are two groups of Altcoins. The first group are cryptocurrencies which copied Bitcoin’s open-source protocol and made changes to create their own blockchain, introducing unique features. Notable examples of Bitcoin-derived blockchains are Litecoin and Dogecoin. The second group of coins devised unique blockchains, producing novel environments to support their coins. Notable examples of native blockchains are Ethereum, NEO, and Ripple.

Tokens are assets built on top of existing blockchains. These assets can be tied to anything that’s tradable, including utilities, commodities, and new cryptocurrencies. The Ethereum and Waves blockchains provide basic templates for creating tokens. Almost 80% of all cryptocurrencies today are tokens, which isn’t surprising considering how much simpler they are to make.

Cryptocurrencies consist of both coins and tokens. Coins operate on their own blockchain while tokens are built on top of other preexisting blockchains. Now that you know the difference between coin and token, the next step is to learn about governance.