Crypto 101: How are Crypto Coins Different from Tokens?
Similar Ideas, a world Apart
For users whose main goal is to invest in cryptocurrency, the difference between a coin and a token might seem confusing. In the real sense, these two concepts are integral to how the blockchain works, but they are in no way a representation of the same thing.
- The blockchain is the underlying infrastructure upon which crypto coins and tokens function
- Coins are native to a blockchain and they serve solely as a means of transaction
- Tokens are representations of value and they have quite a number of use cases
Blockchain: The Genesis
The blockchain is a decentralized ledger technology that processes transactions and safely keeps records. It differs from a centralized network because the details of transactions are not stored on a single server and the transaction verification process is done by several interconnected computers called nodes.
The value of the blockchain is that it does much more than store information, it can also host projects that focus on solving different problems. As a result, there is the need to introduce coins and tokens that will facilitate transactions and activities on the blockchain.
Coins are the Native
Crypto coins are native to their blockchains, and here is why that is important. Coins serve as a medium of transaction for a blockchain. BTC for Bitcoin, ETH for Ethereum, SOL for Solana, among others.
In the real sense, coins only facilitate transactions and they serve as the underlying proof of transaction on any chain. When a user conducts a transaction, even if it is on a decentralized application that resides on that blockchain, the native coin is still used to process the transaction.
Just as countries have currencies, blockchains have coins, and they are the only means of concluding transactions on the native blockchain.
Tokens are for Utility
Tokens on the other hand do not necessarily serve as a means of transaction, although they hold the same logic of transaction as coins. Tokens tend more towards the storage of value. They can represent anything from the fraction of a real-world asset, the right to vote in the project whose value they represent.
They can also serve as a means of value exchange. This is especially true in blockchain gaming where non-fungible tokens and other in-game assets can be exchanged for a set amount of the native token.
Tokens are usually owned by decentralized applications (dApps) that are hosted as solutions on the primary blockchain (like ethereum).
A token is to dApps what a coin is to its native blockchain. However, tokens have more utility which is dependent on the nature and scope of the project they represent. Both are quite important to the way blockchain works, still, they are distinct and worlds apart.
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