After consuming some crypto-related content, most users come to think of tokens and coins as synonyms. The difference between a coin and a token can be a bit difficult to understand for new crypto users. New users often buy crypto coins and afterward realize that what they got were in fact tokens. Therefore, to avoid any misunderstanding, it’s important to know the difference between the two terms.
What are Coins?
Coins are digital currencies created using cryptographic encryption. You can think of coins as actual money. They perform all the functions of real money. In crypto circles, many believe that one-day coins will completely replace physical money. All coins function on blockchains; for example, Bitcoin, Ripple, and Monero all have their own blockchains.
The central features of coins are:
- They can only function as money. For instance, the only purpose of bitcoin’s creation was to replace conventional money. Today you can purchase almost anything with it.
- Coins can only be created on their own blockchain. The blockchain keeps the record of all the coins. Every transaction is safeguarded using cryptographic encryption techniques.
- They can be created by mining. Mining is the process of solving the complicated code that safeguards the crypto transactions, and as a reward for solving it, users are awarded new coins.
What are Tokens?
Crypto tokens are created for a special purpose inside a project environment. Tokens can be used as a payment method but only with specific criteria in mind. For example, if you want to sell your house using crypto, you will create a token that represents your house and then sell that token.
Think of crypto tokens as concert tickets; they are issued by a specific authority and only perform a particular task at the specified place and time. You can’t watch a movie or pay for groceries with a concert ticket – it only works inside the concert hall. Crypto tokens are the same.
Unlike coins, tokens can be created on a different blockchain. Ethereum was the first platform to facilitate token creation and since then many other networks have flooded the space with various tokens.
Tokens can carry out many operations like granting permission for use of a service, representing shares of a company, etc. Coins on the other hand are just money. You can trade, buy or sell things with coins.
Ethereum is the most popular blockchain for tokens right now, you can learn more about it here.
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