The terms “Token” and “coin” are often used to describe different types of digital assets in the context of the Blockchain. This article will provide you with clear insight into what are coins and tokens in the blockchain.
A cryptocurrency coin, such as Bitcoin (BTC) or Ethereum (ETH), is a native digital currency that operates on its own blockchain network. These coins typically serve as a medium of exchange and store of value within their respective networks. They often have their own set of rules and protocols governing their creation, distribution, and transactions.
Moreover, Coins are transferred on the blockchain like current banking transferred from one account to another. Coins don’t move only the account balance changes. The cryptocurrency of the user’s wallet changes and the transaction is noted on the blockchain.
A cryptocurrency token is a digital asset that operates on top of an existing blockchain network, like Ethereum. Tokens are created using smart contracts and can represent various things, such as digital assets, utility, or even ownership rights. Tokens can be used for a wide range of purposes, including decentralized applications (DApps), Initial Coin Offerings (ICOs), decentralized finance (DeFi) protocols, and more.
It is easy to create a token using Smart contracts on top of an existing blockchain, Tokens completely rely on the Smart contract. Tokens operate on the blockchain of existing crypto coins. One blockchain can host thousands of tokens. We can take the example of Ethereum which provides users to create, issue, and manage token that relies on the primary blockchain. Similarly, we can take the example of Stratis where users are allowed to create, issue, and manage tokens that rely primarily on Staratis Blockhain. Tokens are transferred through the Smart contracts that run on the blockchain. It’s important to note that while coins like Bitcoin are inherently fungible, tokens can be both fungible and non-fungible, depending on their design and purpose.
Tokens can have different functionalities and can be classified into several categories:
Utility Tokens: These tokens are designed for specific uses within a particular platform or ecosystem. They provide access to products, services, or features within the network. For instance, some P2E games provide their own tokens that the players can use within the gaming ecosystem.
Security Tokens: Security tokens represent ownership or participation in a real-world asset, such as stocks, bonds, or real estate. They are subject to securities regulations and are designed to provide legal and financial rights to their holders.
Non-Fungible Tokens (NFTs): NFTs are unique digital assets that represent ownership of a specific item or piece of content, such as artwork, collectibles, or virtual real estate. Each NFT has distinct properties and cannot be exchanged on a one-to-one basis. Non-fungible tokens are unique and can’t be interchanged while the fungible tokens are interchangeable.
Moreover, we can buy the tokens with coins and some tokens can carry more value than the coins. Sometimes, you may need 100 coins to buy 1 token.
Hence, Both coins and tokens leverage blockchain technology to provide secure, transparent, and decentralized transactions, but their specific features and use cases can vary significantly. It’s significant to note that while coins are typically independent and have their own blockchain, tokens completely rely on the infrastructure of an existing blockchain platform. In addition to this, coins are commonly used as currency, while tokens have broader utility and use cases within specific ecosystems.