By: Sameer Zubairi | 3 min read | 03/12/2018

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.

It is necessary to note that all coins or tokens are viewed as cryptocurrencies, even if most of the coins don’t operate as a currency or medium of exchange. The term cryptocurrency is a misnomer since a currency technically represents a unit of account, a store of value and a medium of exchange. All these characteristics are inherent within Bitcoin, and since Bitcoin’s creation kickstarted the cryptocurrency industry, any other coins conceived after Bitcoin are frequently referred to as a cryptocurrency.


COIN VS. TOKEN: WHICH IS BETTER TO CREATE?

Deciding on which type of cryptocurrency is better to create is really up to each project team. Coding a new blockchain has become much simpler with the availability of open-source code, however, due to the high level of technicality, it still requires a lot of time and effort. Ultimately, the most significant benefit to designing a new coin (and a new blockchain) vs a new token (using an existing blockchain) is that there might be less reliance upon other teams to make regular technical improvements.

Digital tokens and coins are both essential to the cryptocurrency market. While there is only one fundamental difference between these two cryptocurrency categories, knowing the difference between coins and tokens is critical to understanding how these investment properties function. Moreover, having this technical knowledge can also help you to better evaluate both ICOs and existing cryptocurrencies.

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