Tokens Vs Coins - Know The Difference
Learn the difference between these two popular digital assets.
Picture this – you need new accommodation and there are two options before you; buy a house or rent a room or apartment. Whichever choice you make will be dependent on factors such as the amount of money at your disposal, the availability of houses for rent vs. buying and so on. Bringing this analogy to the crypto world, you can look at crypto tokens as a rented room and crypto coins as an owned house.
Let’s get further into what are tokens and coins in cryptocurrency, their similarities, differences and uses.
WHAT IS A CRYPTO COIN
A cryptocurrency coin is a digital coin that runs on its own blockchain. For instance, Ether is native to and operates on the Ethereum Blockchain and Bitcoin is native to and operates on the Bitcoin Blockchain. Much like a house is built from the ground up; coins are typically built from scratch to be standalone independent digital assets.
Currently, these are the main crypto coins on the market:
Binance Coin (BNB)
WHAT IS A CRYPTO TOKEN
A cryptocurrency token is a unit of value that doesn’t run on its own blockchain but is rather developed and operated on existing blockchain networks like Ethereum. Some of the commonly traded tokens running on Ethereum include Tether, DAI and BNT.
Relating the concept of token to our house analogy, we could say that a token is a room rented inside a house (crypto coin blockchain). Just like anyone can rent a room, so can anyone create a token once they know how to write the correct code or use the automated tools available.
Types of Crypto Tokens
Tokens come in different categories to be used for different purposes. Here are the most common types of tokens you’re likely to come across.
These tokens are digital assets that are minted to represent ownership of an asset like bonds or shares sold by a company to investors to raise funds.
Platform tokens are created to support decentralized applications (daps) on the blockchain. They benefit from whatever blockchain they are built upon while increasing security and sustaining transactional activities. They can be used to support digital collectibles platforms, digital advertising and even gaming platforms. Dai is an example of a platform token and it is built on the Ethereum Blockchain.
Non-fungible Tokens (NFTs)
These tokens have grown in popularity in the past couple of years. Basically, they are digital collectibles and users can make an NFT out of nearly anything including art, event tickets and virtual real estate. Read more about NFTs here.
Also known as Stablecoins or tokenized money, these tokens are digital versions of fiat currency and are pegged to the value of that given currency. They can be traded and exchanged for the same value as well. Examples of stablecoins or platform currencies include Tether (USDT), NairaX (NGNX), and USD Coin (USDC).
The Difference between Tokens and Coins
Tokens and coins share fundamental similarities. They both hold value and can be used to make payments. They can even be swapped for each other. For instance, you can swap BTC for USDT and USDT for BTC.
Where the difference lies between crypto tokens and crypto coins is in the scope of their use. There are certain things that can be done with tokens and not coins. Conversely, some exchanges can only be done with coins. For example, if you want to buy a car from Tesla or a Lamborghini, you can only use coins not tokens.
Another significant difference between coins and tokens is what value they represent. Typically, crypto coins function as digital money while tokens can represent shares, deeds or assets.
You can purchase tokens with coins but sometimes, a token can hold more value if it stands for a company share for instance. On the other hand, a token lacks the liquidity a coin provides since there are considerable restrictions to where and what a token can be spent on.
The key to understanding coins and tokens is to keep trading and a great place to start (or continue) is by joining the Obiex platform. Sign up here and get the Obiex app for iOS and Android to have your tokens and coins working on the go.
Disclaimer: this article was written by the writer to provide guidance and understanding of cryptocurrency trading. It is not an exhaustive list and should not be taken as financial advice. Obiex Finance will not be held liable for your investment decisions.