What Are The Differences Between Coins And Tokens

Coins and tokens are perceived as terms that are interchangeable, especially by users that are new to the crypto and blockchain sector. The question is - is it correct to replace “coins” with “tokens” and vice versa? Are coins the same as tokens or there are differences between them?

The answer is - no, they are not the same. Coins and tokens exhibit distinct characteristics and serve diverse purposes, yet they share common attributes, such as facilitating value exchange. Both are utilized for conducting transactions and operate on distributed ledger technology. 

To put it in simple terms, coins are the digital currencies which are native to their blockchains. For instance, Bitcoin (BTC) is the native coin for the Bitcoin blockchain, Ethereum (ETH) is the native coin for the Ethereum blockchain, and Ripple uses XRP as its native coin. It's crucial to emphasize that the prices of these coins are significantly influenced by the activities of users which are happening on their respective blockchains. For instance, assessing factors like user activity, transaction volumes, and the demand for a particular coin is essential to аffect its value fluctuations. Logically, the more a certain asset is used, the higher the price of that asset would be, driven by a customer demand. External factors also influence coins` prices, but they are beyond the focus of this article. 

Cryptocurrency tokens, on the other hand, are typically designed to facilitate decentralized projects by leveraging established blockchain networks. They are created via smart contacts. Tokens may offer a variety of functionalities which are specific to certain platforms and blockchains. Some of these functionalities could encompass utility, governance and security. 

What Are Cryptocurrency Coins and Their Common Uses?

The idea behind cryptocurrencies was to provide an alternative to the conventional fiat currencies that is decentralized and cuts out the middleman. The main goal was to allow placing transactions, similar to how we do this on a daily basis through the traditional finance methods.

Similarly to what paper money provides, coins can be used for storing value, but crypto coins can also serve as an alternative to the traditional financial system. Coins can be used for buying or swapping other crypto or non-crypto currencies as well as services, products and making transactions between different parties (including covering network fees). Coins provide value, which is why they are also commonly referred to as “cryptocurrencies” - a term that is valid only for coins, but not for tokens.

Cryptocurrencies play a crucial role in the blockchain ecosystem. Because of the decentralized nature of blockchains and the necessity to validate each transaction, a transaction fee is consistently required. Crypto miners are responsible for the validation and processing of transactions. To incentivize their participation in this process, miners receive a set amount of coins as a reward. Tokens cannot be used for paying transaction fees, as they are an additional asset running on a particular blockchain. 

Due to the specifics of each blockchain, the use cases of each coin that is native to these blockchains can differ, coming with its own advantages and disadvantages. Let's see in detail how Bitcoin and Tron networks rate.

The Bitcoin`s network is known for being one of the most secure protocols. The BTC blockchain is constantly reviewed by the entire network and since inception, the Bitcoin protocol has not been hacked. All possible vulnerabilities are more likely to occur outside of the network. Another advantage of the BTC asset is its stability that it guarantees in certain scenarios, such as attempts for market manipulations from BTC whales. 

The TRX coin on the other hand shines with quicker transaction speed, being one of the fastest on the market. It is also more cost effective, especially for higher transaction numbers due to the fact that transaction fees are lower than those on the Bitcoin and Ethereum blockchains for example. 

However, there are certain disadvantages that apply to BTC and TRX coins, and respectively to Bitcoin and Tron networks. Whilst Bitcoin blockchain remains very secure, its transaction speed is slower than Tron, and transaction fees are higher. Tron protocol is not as secure as Bitcoin is. Moreover, the Tron network could be manipulated much easier than Bitcoin`s network. In addition, the TRX coin is more volatile in general as its market cap is multiple times lower than those of Bitcoin. 

What Are Cryptocurrency Tokens and Their Common Uses?

In contrast to coins, which typically serve as alternative digital currencies, tokens are more akin to supplementary assets that operate on pre-existing blockchain networks. Depending on their type, tokens can represent ownership stakes in a company, products, NFTs, and more.

The two most prominent blockchain networks for token issuance are the Ethereum blockchain and the Binance Smart Chain (BSC) blockchain.

Just like coins, tokens can be bought, sold, and traded, but they do not function as a means to cover network fees or as rewards for cryptocurrency miners. As previously mentioned, the functions of tokens depend on both the blockchain they run on and their underlying smart contracts. In general, tokens are categorized into utility, security, and governance tokens.

Utility tokens can provide various perks or privileges to token holders, including exclusive access to platforms, subscription plans, and more. Security tokens, notably in the 2019-2020 period, gained popularity through Security Token Offerings (STOs), which frequently involved the issuance of tokens representing company shares or ownership interests. The third category of tokens is governance tokens, enabling the issuer's community to participate in voting and influence the project's future and strategic direction.

Speaking of tokens` use cases, the majority of cryptocurrency tokens are intended for utilization within blockchain projects or decentralized applications (DApps). Unlike cryptocurrencies, tokens are not mined. Instead, they are generated and distributed by the project's developers. Once tokens are acquired by users, their applications are versatile and can be very different.

It's worth noting that anyone can create their own token using smart contracts on any supported blockchain, but creating a coin is considerably more complex, as it entails establishing your own blockchain network. While the value of a coin can be primarily influenced by factors such as high demand, blockchain utilization, and other internal ecosystem elements, tokens are more susceptible to external forces. Political, economic, social, technological factors, along with public statements made by authorities, regulators, influencers, speakers, and so on, can directly impact a token's price. Note that this doesn't imply that either of these asset types is immune to internal or external influences. Instead, we are highlighting their level of impact.   

In addition, based on the conversation above we can conclude that a key distinction between these two asset types lies in their nature: coins tend to have a deflationary character compared to tokens, which are more prone to inflation and price fluctuations.

Coins derive their value directly from the blockchain they are associated with, while tokens can serve various real-world projects or can even be potentially associated with Ponzi schemes and money laundering activities. The coins value comes from the cryptocurrency`s circulating supply, which value is equal to the value of a single coin, multiplied by the number of all coins in circulation. 

Are stablecoins coins or tokens?

Another class of digital assets worth noting is stablecoins, which, as the name suggests, must maintain a stable value to fall under this category. This stability is often achieved by pegging them to various assets, which acts as a guarantee for maintaining constant levels. For example, USDT is a stablecoin linked to the value of the US dollar, meaning that 1 USDT is roughly equal to $1 USD.

One distinctive aspect of stablecoins is that the majority of these assets operate on the Ethereum blockchain through smart contracts. In reality, they are considered ERC-20 tokens as they lack their own independent blockchains. As discussed earlier, all coins are associated with their own blockchains and are native to their respective networks, which makes stablecoins an exception to this rule.