Crypto Coins and tokens are two related but very different terms. Coin vs token differences seem very small but they affect the change how they can be used. There are some things that can be done by tokens only but on the other hand, not all tokens are available for trading at all crypto exchanges. In this post we are going to see the difference between crypto coins and Tokens and then we are going to see token types and their uses in detail.
Crypto Coin vs Token
The difference between crypto coins and tokens is that the Crypto coins have their own blockchains whereas tokens are created over already built blockchains to support the functionality needed by decentralized applications.
Let’s see the Major differences between crypto coins and tokens.
What is a Crypto Coin?
Crypto coins are based on their blockchains and act as digital currency. Bitcoin was the first Crypto coin that was brought into existence.
Crypto coins have some specific properties which distinguish them from crypto tokens.
Crypto Coins Blockchains.
Crypto coins have their own blockchains. Crypto coins are the native assets of the blockchain. For example, Bitcoin and Ethereum have their own blockchains and are native to their own blockchains.
Crypto Coins Mining
Crypto coins can be mined. The exact mechanism will depend on the blockchain. For example in proof of work, a complex formula is to be solved by the miners to earn rewards like in Bitcoin and Ethereum. In proof of stake, miners stake their holding to earn rewards like in Cardano.
Creating a crypto coin
Creating a crypto coin is not an easy process. Creating a crypto coin requires developing and deploying a separate blockchain. You need a whitepaper, extensive coding and nodes that will hold your blockchain.
Crypto coins are the representation of Money
Cryptocurrencies are like digital money. They represent the value. For transactions, the coin never moves in actuality. The blockchain only records the transactions and carry out balance calculations.
What are Cryptocurrency Tokens
Crypto tokens are the digital assets and are used in decentralized applications for their functionality. Cryptocurrency tokens don’t have their own blockchains. They exist on other blockchains and use their infrastructure for all transactions. In this manner, no extensive infrastructure or investment is required to create a cryptocurrency token.
Crypto token blockchains and transaction fees
As crypto tokens are created on other blockchains. Token transaction fees go to the blockchains which charge for each token transaction. Token transactions are controlled by smart contracts which are hosted on blockchains. A crypto token may exist on different blockchains at the same time.
Crypto tokens are actual assets
Crypto tokens are like digital assets. You own your token. Once, a transaction is done, the token actually moves from one wallet to another like NFTs. Crypto tokens are pre-minted. No mining is required. Smart contract defines how new tokens are created and distributed.
Create a Cryptocurrency token
Crypto tokens are easy to create. Many blockchains offer tools to create your own token. you create a smart contract and simply deploy it on the blockchain. So, no extensive work is required to create a crypto token and no creating and deploying blockchain is required. your can easily create you own token with the cointool or on tokenfactory.
Tokens on Ethereum Blockchain
Convert Tokens to Coins
Crypto coins can not be converted to crypto tokens. However, if the developer of a token feels that tokens need to be converted to coin, they can deploy their own blockchains and convert their token to coins. But remember they need to create a new crypto coin and then swap it with the tokens. The tokens themselves are not converted to coins only they can be exchanged with crypto coin versions.
In short crypto coins have their own networks while crypto tokens are created on crypto coins networks. Remember a token may be deployed on multiple blockchains as well.
Web 3 Crypto Token types
Web 3.0 applications rely on their respective token for their functionality. Every crypto token is created for a specific purpose. The complexity and functionality of a crypto token depend on the purpose it was created for. There are six types of crypto tokens which are as follows:-
A utility token provides services within a decentralized application. They can be used to pay for the services within the application provides. A utility token maintains the network activity within a Dapp. for example a BAT (Basic attention token) is used in the Brave browser to pay for the advertisements.
Commodity tokens are backed by actual assets like gold or US dollar. Their prices do not fluctuate like other crypto tokens. The commodity tokens only provide a representation of actual assets in cryptocurrency. For example tether USDT that is backed by US dollar.
The sole purpose of the transaction token is to transfer money from one place to another. There are huge fees involved in the transfer of money through banks. transaction tokens reduce this cost to the minimum. for example xDAI token on Ethereum.
Platform tokens help run decentralized applications. For example Uniswap, a decentralized crypto exchange has a uniswap token.
Governance tokens are used for decision-making in a DAO. Usually, a token represents one vote. DAO operates on democratic principles where anyone can propose a change and holders of governance tokens can then vote to accept or reject the change.
In Short, there is a difference between crypto Coins and tokens. Coins are native to their blockchains which tokens are created over other blockchains for different purposes to support decentralized applications.
What is the difference between crypto coins and tokens?
The Crypto coins have their own blockchains whereas tokens are created over already build blockchains to support the different functionality needed by decentralized applications.
Can a crypto token become a Coin?
Yes, if developers of the token feel like converting their token to coin, they can build their own blockchain and create a new crypto coin. The holders of the tokens can then replace their tokens with coins.
Do Crypto tokens have real value?
Yes, the crypto tokens may represent a real asset. for example tether USDT represents a US dollar. other tokens may represent some virtual power like governance tokens represent voting power in DAOs.
What are the types of crypto tokens?
Currently, there are six types of crypto tokens. Namely utility tokens, security tokens, transaction tokens, platform tokens, governance tokens and commodity tokens. Tokens are built on existing blockchains to facilitate operations of a decentralized application.
The Post is only the views of the author and should not be taken as legal or financial advice.