What’s the Difference Between Tokens & Coins?

People interested in the cryptocurrency industry should be aware of the terminology used in this environment in order to make informed investment decisions. [There are a variety of acceptable terms for cryptocurrency that people interested in the industry should know in order to make informed investment decisions.] Sometimes it can be challenging to distinguish between terms, especially when they are often incorrectly used interchangeably. In this article, we will look at the difference between coin and token.

WHAT ARE COINS?

Let’s start off with coins. This is perhaps the most liberally used word in the world of digital currencies. Coin refers to a form of currency that’s held digitally. This digital money is kept secure using encryption, which is the process of converting meaningful information into a secret code. Bitcoin is the most famous example of a coin. It has the same characteristics as money: easily exchangeable, divisible, secure against counterfeit, and has a limited supply. These characteristics allow for Bitcoin, or any altcoin, to inherently have value and act as a medium of exchange.It is important to note that coins do not perform any function besides acting as money. They are sent, received, mined, and held on a public blockchain. Basically, coins cannot function specifically, but only as a general measure of value. Similar to how dollars can be exchanged for nearly any good or service available, coins can be exchanged for specific items, but the possibilities are general, not specific.

WHAT ARE TOKENS?

If the best analogy for a coin is a dollar bill, then a good analogy for a token would be a gift card. A token represents a specific asset and is only functional on a unique network. Therefore, tokens can only be used in certain cases as the value they hold is directly linked to the particular blockchain-based project that issued the token. Whereas coins act as digital money, tokens act as digital assets issued by a private company.

There are two types of tokens: utility tokens and security tokens. Utility tokens are redeemable for some sort of reward in the future, like a pre-order, whereas security tokens are issued as equity for a particular project. The purpose of offering these tokens can range from raising investment capital to rewarding users for completing certain tasks. All in all, it’s important to note that tokens can hold value, but of a very specific type as compared to coins, which are generally more valuable.