Crypto Coins vs. Tokens: Here’s Everything You Need To Know

The crypto space is full of terms that are often used interchangeably due to their similarities; now while this can be overlooked, understanding each term and its unique nature can help a noob gain precise blockchain knowledge and make better-informed decisions.

Crypto “coins” and “tokens” are solid examples of terms that are often confused for each other. For instance, while the former operates on its own independent blockchain, the latter does not have it’s own blockchain. Hence, it would be incorrect for them to be used interchangeably just because they both fall under the cryptocurrency umbrella term.

This article will expose you to the key attributes and use cases that separate these classes of digital assets.

What is a Crypto Coin?

A crypto coin is a cryptocurrency such as Bitcoin and other altcoins that run on their native blockchain, and are used to store value, and act as a medium of exchange.

This means that the coin is the native asset of a blockchain network that was built from scratch or improved versions of Bitcoin and other existing public ledgers. It is important to note that crypto coins and the blockchain network where the asset runs are two different concepts even if they have the same name, as is the case with Bitcoin, which is the name of the cryptocurrency that we are all familiar with, as well as it’s underlying blockchain. On many other occasions, the name of the crypto coin may differ from the blockchain, as is the case with Matic, which runs on the Polygon blockchain.

Here is a list of the top 10 crypto coins on the crypto market and their respective blockchains, according to data from CoinMarketCap: 

Creating a coin is a much harder process that requires deep blockchain technology knowledge and expertise, plus a lot of resources. It however allows developers to create new, unique, and tailored blockchain solutions, as well as develop the security and efficiency of the blockchain to meet their required standards and help boost coin price action. With crypto adoption on the rise, coins also serve the function of money in the areas of store of value, and a means of paying for services, whether to blockchain companies or even traditional companies that accept crypto payments such as Microsoft, Starbucks, Amazon, and Tesla.

What is a Crypto Token?

A token is a type of digital currency that represents an asset or service. Tokens, unlike currencies, do not have their own blockchain and are instead issued on top of existing networks. Tokens, unlike coins, are not mined during the transaction validation process. They are instead minted. The overall quantity of tokens minted is determined by the issuing project’s various requirements.

Tokens can serve a variety of functions. They can be used to raise revenue or to provide certain services. Some tokens can even be used to represent currency on another network. Such tokens are known as “wrapped tokens,” and they track the price of the underlying asset. Another popular sort of token is a stablecoin, which is a token that is pegged 1:1 to the US dollar.

Here are the top 10 crypto tokens currently available in the crypto space, according to data from CoinMarketCap:

How do Crypto Tokens Work?

Crypto tokens are created on already existing blockchain networks that have their own suite of tools for the generation of new tokens. The process doesn’t necessarily require the coding or technicality of building a fresh blockchain or crypto coin from the inception; although tokens with advanced features will typically require a high level of technicality and expertise. 

If you intend to build a token on such platforms, you will need to deploy smart contracts, which are self-executing contracts that carry out specified actions when predetermined conditions are met. These smart-contract-enabled tokens can be used by users to interact with the platform, products, and services that are being offered by the project (token owners). After creating the tokens, they are typically offered to the potential users of a crypto startup platform as a way to fundraising method, through initial coin offerings (ICO).

Types of Crypto Tokens

Crypto tokens can be categorized into many types, but are more broadly categorized into three major types: utility, security, and governance. 

Utility Tokens: Utility tokens provide holders with access to and enjoyment of exclusive products and services. Unlike security tokens, they are not created specifically for investments, but as a way to transact within a project’s ecosystem. Utility tokens like BNB can be used to pay network fees to complete cryptocurrency swaps or transfer crypto on exchanges; others like Dai can also be used as in-game currency to purchase in-game items for games such as Axie infinity in the form of non-fungible tokens (NFTs). 

Utility token prices on the crypto market are typically linked to the growth of the platform they are utilized in and the volume of usage, rather than the broader forces that influence coin price action, which can be as a medium of exchange, inflation hedge, or a long-term store of value.

Security Tokens: A security token represents a digitized version of conventional security. It’s important to note that possessing a security token does not confer ownership rights on the issuing entity. Instead, these tokens can come with other privileges. They are distributed through a security token offering (STO), a type of public offering. Similar to conventional securities, security tokens are governed by regulatory agencies such as the U.S. Securities and Exchange Commission (SEC).

Blockchain Capital (BCap) is a popular example of a crypto security token that allows holders to benefit from the overall performance of the token, earn profit dividends, and enjoy other benefits such as the right to vote on changes to the ecosystem.

Governance: Governance tokens provide holders with voting rights and enable democratic governance of the project or ecosystem. The token enables investors to vote on dApp modifications, which are proposed in a smart contract to enable the community to vote by staking their governance tokens. When the voting session is over, the smart contract automatically counts the votes and logs the results on the blockchain. AAVE token of the Aave protocol, a decentralized lending platform is an example of a governance token, which allows the community of over 120,000 governance token holders to vote on platform maintenance, implementing new features, adding new assets, and more.