1.05 Cryptocurrency coins vs tokens: what is the difference?

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In your research to understand the crypto sphere, you may have encountered articles where the terms ‘coins’ and ‘tokens’ are being used interchangeably. It is common to think that coins and tokens are the same. However, these terms are not the same and they have a fundamental difference.

If you are a newbie to crypto, you might not know the difference between coins and tokens. But, it is important to understand the terms properly before learning further concepts about cryptocurrencies. We are here with another lesson to help you understand coins, tokens, and everything in between. 

This lesson explains the differences between crypto coins and tokens. 

Contents

• What is a cryptocurrency coin?
• What is a cryptocurrency token?
• Differences between coins and tokens

What is a cryptocurrency coin?

A cryptocurrency coin is built on an independent blockchain network. It is an asset native to its very own blockchain. It can be used as a store of value, or a medium of exchange. 

The largest cryptocurrency in the world, Bitcoin is the best example of a cryptocurrency coin. It exists on its own independent ledger i.e. Bitcoin blockchain as a unit of value. Other leading coins like Ether and Cardano also exist on their own blockchain platforms.

Examples of cryptocurrency coins - Bitcoin (BTC), Ether (ETH), Litecoin (LTC), Cardano (ADA), Ripple (XRP), Bitcoin Cash (BCH), etc. 

What is a cryptocurrency token?

A crypto token is a digital asset built on an existing blockchain platform. It isn’t native to any blockchain network. 

Crypto-related organizations or projects develop crypto tokens on top of existing blockchains. Most of the crypto tokens are issued or minted on the Ethereum blockchain network. They are called ERC-20 tokens. 

Unlike coins, it is very simple to create tokens. By writing a bunch of computer codes or using automated tools, you can create a token. You can even give it a name based on your preference. 

Examples of crypto tokens - ERC20 tokens like Tether (USDT), Chainlink (LINK), USD Coin (USDC), Wrapped Bitcoin (WBTC), etc. 

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Differences between crypto coins and crypto tokens

We’ve looked at the basic fundamental difference between crypto coins and tokens. Let’s understand their differences in detail. 

• Cryptocurrency coins are based on their own blockchain network. But, tokens are built on existing blockchains.
• A crypto coin can be used for payments and as a store of value but tokens have multiple use cases like security tokens, asset-backed tokens, non-fungible tokens (NFTs), tokenized money (Stablecoins), etc.
• It is less expensive to create a token when compared to a coin.
• Tokens can be created easily on an existing blockchain by using automated tools and templates while creating a coin requires a lot of work as it involves creating a completely new blockchain network.

One interesting thing about tokens is, they can become coins if the project develops its own blockchain. When tokens are migrated to the new blockchain network, they become coins. Binance Coin (BNB) and Tron (TRX) are examples of this case. Previously they existed as tokens on the Ethereum blockchain, however, they now have their own blockchain i.e. Binance Smart Chain and Tron. 

The easiest way to differentiate the coins and tokens is to look if they have their own blockchain network or not. We hope that this lesson keeps you in a better position to use the terms ‘coins’ and ‘tokens’ correctly the next time.