Many crypto investors who are at the beginner or intermediate stage are confused about many crypto terms and are often seen interchanging the terms.
Some of the most common mistakes include confusing ‘investing’ with ‘trading’, ‘coins’ with ‘tokens’, and many more.
This post will state the clear differences between tokens and coins in cryptocurrency, and while this may seem like such insignificant knowledge, it will serve as the revolution of your cryptocurrency vocabulary.
- Coins are digital currencies that operate independently of a central bank and are created through mining.
- Tokens are digital assets built on top of existing blockchains and are created using smart contracts.
- Coins are primarily used as a medium of exchange, while tokens can have a variety of different use cases.
The points above are the biggest differences between tokens and coins and they draw a fine line between the two terms. However, further explanation is made below in order to ensure complete comprehension of the differences.
A coin is a digital or virtual currency that uses cryptography for security and operates independently of a central bank.
Bitcoin, for example, is a coin.
Coins are typically created through a process called mining, in which powerful computers solve complex mathematical equations to validate transactions and create new units of the currency.
A token is a digital asset that is built on top of an existing blockchain. Tokens are created using smart contracts, which are self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code.
Tokens can represent a variety of things, such as assets, utility, or even voting rights. In a nutshell, tokens are quite versatile.
Ethereum, for example, is a blockchain that allows for the creation of tokens through its smart contract functionality.
Perhaps the biggest difference between these two digital assets is in their use. Coins are used as a medium of exchange, while tokens can have a variety of different use cases, such as representing a share in a company or being used as a means of accessing a specific service or platform.
