What is the difference between a crypto token and a coin? It’s all too easy to use these terms interchangeably, but the two words definitely represent two separate things. Some sources will tell you that “all coins are tokens” at a basic level, but are quick to add that not all tokens can function as coins.
The Definition Of A Coin
Cryptocurrency like Bitcoin and Ethereum have their own blockchains. When you mine or mint a coin, you’re using the blockchain for that coin. When you buy in Bitcoin, the transaction is recorded in the Bitcoin blockchain.
The same rules apply to other coins. Buying Ethereum includes a record of that transaction recorded on the Ethereum blockchain. When you buy, sell, or trade on that currency’s blockchain, there is a record. The coins you invest in can be spent like regular money in any place that accepts that coin.
Why do people like these coins? The most popular answer is likely that using coins makes it possible to perform a transaction between two people remotely, anonymously, and in a decentralized way.
Definition Of An AltCoin
Altcoins don’t really have a place at the table in this discussion, so to speak, as they are essentially offshoots of coins and not a third “option” in the discussion. Basically, altcoins are the same as coins in general.
Some began using “altcoin” to discuss any cryptocurrency that was not Bitcoin, and the term stuck. For the purposes of this article, the terms “coin” and “altcoin” basically represent the same thing–something that is not a token.
Definition Of A Token
What is the basic difference between a coin and a token? Investopedia says crypto tokens are defined as “a denomination of a cryptocurrency” which represents an asset or even a function or utility that, “resides on its own blockchain and allows the holder to use it for investment or economic purposes.”
Some prefer to simplify the entire discussion by describing tokens to be a representation of what you own compared to a coin which represents the potential buying power of the owner of that coin.
A token may represent an asset, and they can be held or traded. They can even be “staked” as a way to earn passive income in the form of interest or other rewards given in exchange for the stake.
Coins have their own blockchain, while tokens do not. Tokens “live” on the existing blockchains they are used on. Tokens may, depending on what they are, be worth a great deal of money or they may represent a stake in a project or company.
At this stage in the conversation, it helps to have a discussion about NFTs as a good example of what a token can do. NFTs, or non-fungible tokens, can be purchased with cryptocurrency. You spend your coin to buy the token which in this case could be an NFT such as those offered by Bored Ape Yacht Club or CryptoPunks. But not all tokens are created, sold, or traded as NFTs.
Tokens can be used like cash the way you can use other valued commodities; gold, rare comic books, first-edition books, etc.
They can be held as an investment in the same way. When you buy a rare baseball card, you are essentially purchasing a token of sorts, one that has value and potentially stores it over time. You can hold the card, sell it for a profit, or trade it the same way you can using a crypto token.
Types Of Tokens
There are several different types of crypto tokens, each with certain uses. For example, the previously-mentioned non-fungible token can be used to identify digital artwork or other assets including features of online gaming.
Crypto reward tokens are also popular–these may be given out for free to the investors of the project offering the tokens, they may be “dropped” or made available to investors and newcomers for a limited time or they may be offered as standing perks for signup or participation.
You may encounter crypto tokens when conducting certain transactions related to decentralized finance, and you may also be given tokens when you are a voting member in a crypto project. Those who have these “governance tokens” would qualify to vote or otherwise participate in agreed-upon ways that will vary depending on the project and other factors.
Some good examples of cryptocurrency tokens include:
If you are a newcomer to investing in crypto, it’s a good idea to research these tokens and the blockchains they reside on to learn more about how the ecosystem works and what you can do to participate in ways that are good for your economic bottom line and the safety of your investment funds.
Joe Wallace has covered real estate and financial topics, including crypto and NFTs since 1995. His work has appeared on Veteran.com, The Pentagon Channel, ABC and many print and online publications. Joe is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News.