The world of crypto is constantly evolving and with the current surges in the market, there are plenty of people who are looking to invest and start diversifying their portfolios. Before you jump right into crypto however, it is important that you understand exactly what it is.
Today we are going to be focusing on looking at a crypto token vs coin. They might sound similar, but in fact operate quite differently. If you are going to want to learn and understand the market better, you are going to want to learn the difference between the two and how you can use both to your benefits.
Tokens have existed for quite a bit of time but only recently have they surged in popularity. That is why we feel it is important to create this article now so that you can keep up with the times and understand what is going to be going on in the digital world.
We are going to specifically be looking at a token definition along with a coin definition. Hopefully by the end of it, you will understand the two in a much better way and learn the difference between token vs coin. Let’s jump right into it and start with the easier of the two, the coin.
When looking at token vs coin, we first have to understand the main purpose of each of them. A crypto coin works exactly like you think it would. Within cryptocurrency, each coin operates on what is called a blockchain. Each blockchain is unique to their own coin so you won’t find any intermingling.
If that is a little confusing, I’ll give you an example so you can better understand the definition of a coin in reference to the blockchain. A bitcoin can only operate and function on the bitcoin blockchain, while ether can only operate on the Ethereum blockchain. Think of it the same way as currencies in the world. Each country for the most part has their own currency which is unique to them.
With these coins, you can conduct transactions and trade them with other people using crypto market platforms. It is important to note that there are no physical coins when looking at cryptocurrency, but instead a large database which stores all information on its blockchain. Whenever you carry out a transaction, it is checked by a computer using the blockchain and processed.
When it comes to understanding how you can use them for real world application, once again think of them as any real life currency. Of course you are going to have to find someone who is going to accept it with a transaction, but if you do, you can carry out business as you normally would. They carry the same definitions of cash meaning:
- You can transfer value
- To store value
- To price goods
By now, you should be getting a general idea of what a coin is in regards to cryptocurrency. Before we jump into looking at a token vs coin however, there are a few unique things to cryptocurrency coins that are worth talking about.
For the most part, crypto coins can be used for something and do have a practical application. The only coin that does not have any projects however is bitcoin. Bitcoin is simply just another form of money.
With other coins however such as ethereum, cardano, or siacoin, they have practical applications in the digital world.
What does this mean for you as an investor? Generally, this won’t affect your own personal life, but it will affect companies who are looking to use these coins. As a smart investor, you can research what these coins do and see if they are going to be practical for a business to use.
From there, you can decide if they are worth investing in. A coin like cardano for example has many companies that are planning on using it for upcoming projects.
Now it’s time to jump into the more confusing end of the token vs coin discussion. Tokens are still developed in tandem with cryptocurrencies, however they are separate from the blockchain. Think of them as one of the projects mentioned above that the blockchain organizers have decided to use and authorize.
A good coin to look at when talking about token vs coin is ethereum and ether. Ether is the coin that is native to the ethereum blockchain, however projects such as CryptoKitties which have become exceedingly popular, are built using ethereum. Still a little confused? We will try to break this down as best as possible for you.
Unlike coins, tokens can have multiple uses depending on what they are programmed for. They can be used on certain platforms to access specific features, or can even be used when playing games. The beauty of these tokens is that they can be programmed to be whatever you want them to be.
When it comes to crypto tokens, there are four major aspects to look at
When we talk about programmable, we mean that as mentioned above, a token is run based upon protocols that help to underlie what the token is to be used for. Think of them as contracts in a way, dictating what it can and cannot be used for.
Permissionless means that these tokens are available for anyone. You don’t need to have a certain job or certain credentials to obtain the token. If you want it, it can be yours.
Moving on to trustless, it simply refers to the fact that the tokens are decentralized. There is no large entity in control of everything which can be seen as a good thing. This helps to ensure that the tokens do not simply disappear into thin air or get recalled back by a large company that owns them all.
Finally, transparency means that anyone can view and verify the tokens. If you are interested in learning more about how they operate during transactions, all of that information will be available for you.
How can you use a token? Similar to coins, tokens can hold value and can be traded between other people. Tokens can also be used to represent physical assets. An easy way to look at tokens would be to think of them like collectible cards in a card shop.
When you walk into a trading card shop, you have the option of buying an individual card for a set price, or buying a pack and opening them, changing your luck. Even though there are multiples of the same card out there, they are all numbered, therefore making each one unique.
This is one of the best ways to understand the difference when it comes to token vs coin. Tokens are generally unique and can be distinguished from each other. Even if two tokens are the same, they can be numbered.
This is going to lead us into our next discussion when it comes to tokens.
Non-Fungible Tokens or NFTs for short is a digital asset that is used to represent a real world asset. Think of the card shop example we talked about earlier. NFTs have been around for several years now, but they have recently had a huge boost in popularity, similarly to how bitcoin and cryptocurrency exploded in 2017.
This has created a market where tons of companies are looking to partner up with blockchains and cash in on the NFT mania. Many of the popular sporting leagues in the world have decided to create their own NFTs which can be traded and sold on their own marketplaces.
There is a reason why we used a trading card shop in the token vs coin example and this is the exact reason. A few months ago, the NBA introduced their own NFT line to the world called NBA Top Shot.
It operated in the exact same way a card shop would operate. You put money onto the site and then purchased a pack which was opened. We should note that if you did not pay for the token using cryptocurrency, it was most likely converted to cryptocurrency by the site itself.
Once you open these packs, you are given multiple NFTs which are highlights of players from across the league. Thousands of people opened their packs and as a result, there were bound to be duplicates.
When it comes to coins, everything is created equally. One bitcoin is one bitcoin is one bitcoin. No two NFTs are the same however. Let’s continue with the NBA example and say that you opened up an NFT Lebron James highlight.
You find someone else who opened up the same highlight as well. Upon further inspection you own NFT 50 out of 500 in the collection while he owns NFT 200 out of 500. Because your NFT is closer to the original, yours is generally going to be valued higher.
In a way, NFTs have become a form of gambling, with people spending their cryptocurrency to open packs in the hopes that they can open something that is rare. Currently the market is hot so many NFTs are selling at prices higher than the actual packs. Once the market calms down however, you can expect an economy system to emerge based upon supply and demand along with rarity.
Now you might be asking, why would people want these types of tokens and why would they spend money on them; can’t they just be found on the internet? Yes, they can, but remember that people also collect things in the physical world to be sold at a far greater price. Look at artwork for example.
You can access a photo of a painting online at any given point, but buying the original will cost you millions. This concept has been around for hundreds of years and while it might seem odd with these tokens at first, you will begin to understand more and more.
These tokens are definitely quite an interesting thing to look at and it is going to be interesting to see what happens in the coming years. Even the MLB has gotten on board with these tokens and are selling their own card packs.
When looking at token vs coin, you have to look at the specific usage. Coins are mainly used to store value and be used in transactions. Coins are indistinguishable from each other and they are not numbered in any way. If you and a friend both have one bitcoin, you both have the exact same amount of value.
Tokens by definition are quite unique and differ from each other. They operate above the blockchain and can carry more or less value than the amount of cryptocurrency that was used to obtain them.
If you and a friend both had a token, they might not be the same. Even if they are, there would still be a way to distinguish between the two, therefore resulting in a price difference.
We hope that you now have a better understanding of token vs coin in the crypto world. With tokens still being a fairly new thing, everyone is watching them carefully to see how they are going to operate in the market.
If you are looking at investing in either of these, take your time and specifically research the token or coin that you are thinking of getting.