It is not uncommon to find crypto enthusiasts use the terms “coins” and “tokens” interchangeably. The fact is that a lot of people can’t tell the difference and will often use both terms to mean one and the same thing (I make the same mistake, sometimes). So, if you have been wondering when you are supposed to call a cryptocurrency a token or when to refer to it as a coin, let’s dive straight in. The most important thing is that the digital asset you are supporting goes to the moon, *winks*.
Coins and tokens are both categorizations of cryptocurrencies. Although, a lot of what is referred to as crypto coins today do not meet the standard of being a currency or medium of exchange. The term “cryptocurrency” is in itself a misnomer since it is supposed to represent a store of value, medium of exchange, or a unit of account. While Bitcoin has grown to possess all these characteristics, a lot of coins that came after are yet to fulfill these criteria but are still generally called cryptocurrencies. In general, cryptocurrencies can be grouped in alternative coins (altcoins) and tokens, as earlier stated.
Crypto coins are digital alternatives to fiat money, created using encryption techniques, and meant to perform the same function as fiat currencies. Altcoins, as the name implies, are alternative currencies to Bitcoin. Every other cryptocurrency other than Bitcoin can be referred to as an altcoin.
Bitcoin is the most famous example of a coin, although it is not an altcoin. Other cryptocurrencies in this category include Litecoin, Ripple, Namecoin, and Monero, amongst others. Coins, in general, are based on blockchain – a decentralized, public, and transparent ledger.
As with fiat money, for a cryptocurrency to qualify as a coin, it must be acceptable as a medium of payment, divisible, fungible, durable, and have limited supply. Although most ambitious crypto enthusiasts have claimed that coins will replace fiat money in the future, I don’t see that happening anytime soon.
It is important to note that crypto coins are not meant to perform other functions other than acting as money – to be sent, received, or mined. It is also worth noting that most altcoins just like Bitcoin have their own independent blockchain where native transactions occur.
Tokens are digital assets that are built to perform specific functions within a blockchain project. These functions can range from being used as a method of payment within a blockchain’s network, or as a security, given its holders some say in a blockchain project.
Creating a token is relatively easier than creating a coin. With platforms like Ethereum, it is quite easy for anyone to create tokens in a few steps, as opposed to creating a new coin/blockchain. Also, tokens are often created and distributed to the public through Initial Coin Offerings (ICOs). So, now you know that most of the digital assets you have are actually tokens and not coins.
In conclusion, the primary difference between coins and tokens is in their structure. While the former are separate currencies with their own blockchains, tokens are built to operate on top, or more appropriately, within a blockchain, giving access to a product or service, or used to represent a company’s share.