In the materials on the subject of cryptocurrencies, the words “coins” and “tokens” are among the most frequently used. Some authors use them as synonyms. But these words mean different concepts. It is important for crypto traders and investors to know such nuances in order not to be considered an illiterate person in the field of digital technologies.
First – About Coins
“Coin” is translated from English as “coin.” This word is used to denote monetary units born on the Internet. The process of mining coins in the network is called mining.
Coins are in independent circulation, work on their own blockchain, which recognizes them as their native currency.
The main virtual coin is Bitcoin, the common name for the remaining digital assets is alternative coins, in short – altcoins.
Altcoins can function either on their own unique blockchain, such as Ethereum, or they are launched based on the original source code of the Bitcoin blockchain, like lightcoin. The developers of the second only slightly changed the chain of blocks of the first cryptocurrency.
Since coins are currency, they can pay for goods and services.
Now about tokens
The word “token” in translation into Russian means “symbol”.
A token is a unit of account by which the trade balance of a digital asset is displayed. It is a kind of valuable digital paper, located in the form of an entry in the blockchain register.
This asset is not subject to mining, its activities are built on the basis of an already working platform, for this reason tokens are easier to launch. Most often, their developers use the Ethereum blockchain. The Ethereum team also pursued this goal: for other enthusiasts to create their products based on its brainchild. Therefore, such a variant of the blockchain was developed that is easily amenable to any changes.
Tokens are managed, as a rule, by smart contracts, it is in them that the balances on the holders’ accounts are displayed, with their help transfers are also carried out.
Tokens are issued for different purposes. For example, service tokens are designed to access a specific service. With the help of tokens-shares, investments are attracted to the project, credit ones lend money.
What is the difference
Coins are the main element of the cryptocurrency market, so participants strive to collect them as much as possible. But people are also not averse to having tokens, because those opportunities are even wider. If coins are a tool for speculation on the cryptocurrency market, then tokens are documents indicating that their holder is the owner of a particular object.
The cost of crypto is determined by the market, and tokens – from the demand for them and different offers, for example, from binding to other assets.
The price of coins moves in one direction or another smoothly, as in the foreign exchange market with traditional assets.
The cost of the token directly depends on the working capacity of the development: on a successful turn of affairs, it can take off in a short time. But the investor needs to be prepared for bankruptcy: if the project collapses, then he will fall into the number of severely affected. Therefore, coins are considered more stable, and tokens are a more risky tool for investments, they are recommended only to gamblers who want to make a quick profit and are ready to take risks for this.
Coins and tokens are born in many ways. The first work on the basis of an independent blockchain. He is his own boss when conducting transactions. It is blockchain that guarantees the reliability of a digital asset, which makes it a valuable product.
Tokens usually begin their journey in the crypto industry on a foreign platform – on a platform that was created by other developers. Among them there are those who re-formed into coins. After gaining such independence, the creators of the former token launch their own blockchain.
Cryptocurrency emission – the process is always decentralized, and tokens can also be issued in a completely centralized manner.
Verification of transactions for coins is decentralized, for tokens it can be centralized.
Coins and tokens are used in various operations.
The main function of coins is to use them as a currency. They can be exchanged for official money at the current rate. With coins you can pay for goods and services, they themselves can act as a trade object.
Tokens, first of all, are a tool for raising funds for new startups. They are offered to investors in return for the invested money, which become shareholders of the company’s project. But these securities cannot be used immediately after purchase. The investor will have to wait until the ICO ends. Only after the completion of this stage does a new product enter the market and become a tool for profit.
The crypto industry is a young industry, not everything is settled in it, so it is not surprising that many do not understand the terms, especially in such close terms as tokens and coins. But experts advise traders and investors to learn how to competently work in the cryptocurrency market, so you need to delve deeper into the essence of the matter. Understanding the nuances will only benefit them, help them become a professional in the field of digital assets.