Crypto Token vs Coin: The Key Differences Explained

Cryptocurrency tokens, on the other hand, are cryptocurrencies that do not have their own blockchains, and hence they’re built, coded, and released on another layer one blockchain. Many crypto projects launch tokens on other blockchain networks rather than building a blockchain. That way, they can capitalize on the efficiency of large blockchain networks while unlocking the business benefits of holding and exchanging value based on smart contracts. Another significant highlight in favor of crypto tokens in the difference between cryptocurrencies and tokens is their application in dApps.

• They can represent any coins or assets across blockchains, creating a more frictionless market.
• James has 15+ years of experience in technologies ranging from Blockchain, IoT, Artificial Intelligence, and Augmented Reality.
• However, unlike cryptocurrencies, their behaviour is not built into the blockchain software itself.
• This means tokens can involve conditions relating to their distribution, transfer or even involving instructions directing to other tokens or protocols.
• Some tokens also give users the right to vote on proposed changes to the protocol and are therefore called governance tokens.

However, the primary difference between coins and tokens is relatively straightforward. In contrast, cryptocurrencies issued on top of another blockchain are tokens. The primary feature that separates crypto tokens from coins is that the former exists on top of a blockchain.

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The following discussion helps you find reliable answers to the token vs. cryptocurrencies debate. You can discover a detailed overview of the differences between cryptocurrencies and crypto tokens from different aspects. The term cryptocurrency refers to a class of digital assets that rely on cryptography and blockchain technology. Indeed, the feature that ties all cryptocurrencies together is their reliance on blockchain networks.

You can clearly identify how cryptocurrencies work as a store of value and medium of exchange. You can use this information to draw a better token vs. cryptocurrencies comparison. Now, you must note the specific traits of cryptocurrencies which are often responsible for the parallels drawn with tokens.

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Utility tokens are commonly issued through an initial coin offering (ICO). This is usually done through an initial coin offering (ICO) where coins are sold to the investors. After the launch of the project, tokens serve as their currency and provide customers with access to various features.

These standards make it easier for crypto tokens to be stored, used, and exchanged on a blockchain in the same way as the chain’s native cryptocurrency. In addition, many crypto exchanges and organizations have started creating their own platform tokens. This is why tokens come in the form of reward tokens, currency tokens, utility tokens, security tokens, and asset tokens. Cryptocurrency coins and cryptocurrency tokens are often used interchangeably to refer to the same thing, but they’re actually different items in the overall crypto ecosystem. In simple terms, cryptocurrency coins are cryptocurrencies that have their own blockchains.

They use cryptography to ensure security and transparency while decentralizing control. Crypto tokens are often used as a way to raise funds for projects in initial coin offerings. ICOs have been abused by many parties to fool investors pros and cons of token economy into contributing funds, only to disappear, but many are valid fundraising attempts by legitimate businesses. If you’re considering crypto tokens as an investment, be sure to do your research on the team or company offering them.

It is the first decentralized supercomputer drawing power exclusively from data centers and individual computers worldwide. Crypto tokens play a massive role in powering the Golem supercomputer. Bitcoin has completely shunned the need for centralized ledgers and turned into reliable stores of value.

The purpose of crypto tokens

While the Ethereum network’s native coin is Ether, it also supports lots of other Ethereum-based currencies that follow a specific standard called the ERC standard. To explain, there are multiple currencies (and other assets) on the Ethereum network that are not Ethereum’s native Ether and each of those assets are known as tokens. Crypto tokens are units of value built on top of an existing blockchain network—they’re not related to its consensus mechanism or network security. Think of them as subsidiary assets that rely on a host blockchain to function. Running nodes costs money, both in the form of hardware and electricity. So blockchain networks need a financial reward system to incentivize people to operate nodes.

Some common proof of work coins include Bitcoin (BTC) and Litecoin (LTC). When miners find a new block, they receive new coins as a reward for securing the network. This incentivizes people and groups to mine on their own, helping to keep the network decentralized. The ERC-20 standard, for example, makes it possible for tokens to be easily integrated in an Ethereum wallet and used across Ethereum-based DApps.

What Is the Difference Between a Crypto Coin and a Crypto Token?

Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author does not own cryptocurrency. Between 2012 and 2016, crypto token creation and ICO increased until 2017—token offerings skyrocketed as investors seemed to become aware of them and the possible increase in value they promised. This means that they’re more likely to be used to buy actual goods and services. This is because they’re not as volatile and aren’t subject to the same pump-and-dump cycles as tokens. This is because they have more extensive networks, more adoption, and more features.

In many cases, tokens go through an ICO and then transistion to this stage after the ICO completes. Bitcoin, for example, is currently the most valuable cryptocurrency, with a market capitalization of over $368 billion. Ethereum, on the other hand, has a market capitalization of around $156 billion. In addition, crypto tokens also serve as the foundations for supercomputer platforms, as evident in the example of Golem.

The next critical factor in crypto vs. token comparison would refer to the basic design underlying cryptocurrencies and tokens. Cryptocurrencies are available as in-built logic in the blockchain protocol. Therefore, you can identify that cryptocurrency units are integrated into protocol of the blockchain software only. A native blockchain refers to the foundational layer of a cryptocurrency project. Developers may also refer to this blockchain as layer-1 because it doesn’t rely on another network. The code that governs a native blockchain is self-contained, and its coins are only valid because of the protocol’s built-in features.

You can even lend, borrow and access countless blockchain apps directly within Ledger Live, meaning you don’t need to forfeit custody of your keys to start exploring. Unlike cryptocurrencies, tokens are often used for more than just holding and exchanging value. Crypto tokens also far outnumber cryptocurrencies because of their flexible use cases, and relative ease of development. The differences between cryptocurrencies and crypto tokens are fundamental. Crypto tokens aren’t meant to be standalone currencies, but rather to represent a certain value, utility, or function within a specific blockchain network or platform.

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Each blockchain’s network activity is denominated in one—and only one—native cryptocurrency. For example, the Bitcoin network’s native cryptocurrency is bitcoin (BTC), Ethereum’s is ether (ETH), and Solana’s https://www.xcritical.com/ is solana (SOL). A crypto token is a cryptocurrency that’s created or programmed on an existing blockchain. Cryptocurrency tokens that are compatible or usable on Ethereum are known as ERC-20 tokens.

Check out Brave Wallet if you’re looking for secure storage for all your crypto assets (including cryptocurrencies, tokens, and NFTs) built right into your browser. As mentioned above, the cryptocurrency market is broad and inclusive, to the point where digital assets called stablecoins have entered the arena. Stablecoins, since they’re called stablecoins, are best to be called coins. This is because of their use cases being primary for money exchange and not necessarily for actions such as governance, voting, funding protocols, etc. Although they technically don’t fit the above definitions, stablecoins are separate cryptocurrencies that should fall under the category of cryptocurrency coins.