Token vs Coin: Understanding the Key Differences

When it comes to cryptocurrencies, those who are not so deeply versed in this topic often have terminological confusion. The two most commonly used terms are token and coin, which raise questions about how they differ. Many even interpret them as the same thing. But this is not entirely true.

What is a crypto token? Tokens are digital assets that are tied to and operate on an existing blockchain platform. Coins are cryptocurrencies like Bitcoin that operate on their own blockchain.

Read this brief to understand better how a token is distinguished from a coin and why this difference is so important.

To discover the difference between token and coin, let’s begin with the coin term. Bitcoin is the first crypto coin created as a decentralized asset with its own blockchain. After that, the development of an entire industry with many new assets and projects began.

A coin is an asset and is also considered a blockchain coin. Each coin is located on its own blockchain, which bears its name. Within this blockchain network, users can transfer coins to each other virtually.

• Native to a blockchain. Coins operate on their own independent blockchain.
• Used for transactions. Coins are primarily used as a store of value or for transactions within their own blockchain network.
• Utilize a variety of consensus mechanisms. Nowadays, coins rely not only on traditional mining (Proof of Work) or staking/validators (Proof of Stake) consensus, but they use different consensus models. These can be Proof of Authority, Delegated Proof of Stake, or other innovative methods to secure blockchain and verify transactions.
• Have value based on network security and utility. The value of a coin is often influenced by the security of its blockchain and its utility within the ecosystem. According to the blockchain trilemma, most coins balance two main functions: decentralization and security.

What are the popular coins? You probably hear about Ethereum, Bitcoin, Binance Coin, and Solana.

Ethereum (ETH)
Ethereum is a decentralized platform for smart contracts and dApps (decentralized applications). It enables DeFi and NFTs (non-fungible tokens), using its native cryptocurrency, ETH, to pay for transaction fees (gas).

Bitcoin (BTC)
Bitcoin is a peer-to-peer digital currency used as a medium of exchange and a store of value. It's decentralized and secure, with a capped supply of 21 million BTC.

Binance Coin (BNB)
It is the native coin of the Binance exchange, used to pay for trading fees, transaction fees, and more within the Binance ecosystem. Binance also burns BNB periodically to reduce supply.

Solana (SOL)
What is Solana? It is a high-performance blockchain focused on low-cost and quick transactions. It supports dApps, DeFi, and NFTs, using SOL coin for fees and staking.

The next section in our guide on how token vs cryptocurrency differs is dedicated specifically to tokens.

The first tokens appeared in the modern sense only in 2015 with the launch of the Ethereum platform. It introduced functions for creating digital assets without a new blockchain. Let’s consider the tokens in more detail.

What is a crypto token? A token is a coin that is crafted on a blockchain network. What is the most popular blockchain platform for creating tokens? Ethereum. Therefore, most often, you can see the ERC-20 standard in a token. There are other platforms on which you can build tokens, but it will be less popular.

When does a token become a coin? A token becomes a coin when it transitions from being a digital asset built on an existing blockchain to having its own independent blockchain. By the way, the functions of this token are also changing.

• Created on existing blockchains. Tokens are built on top of an existing blockchain using smart contracts.
• Provide varied applications. What is token crypto? Tokens can have a wide range of purposes. These can be security tokens, utility tokens for accessing unique services, non-fungible tokens, governance tokens, and others.
• Depend on the blockchain platform. Tokens rely on the blockchain of the underlying platform (Binance Smart Chain, Ethereum, and others) for transaction processing and validation.
• Managed by smart contracts. These self-executed contracts define the rules of how tokens can be transferred, how new tokens are minted, and their functionality within the ecosystem.
• Simpler to create. Building tokens is easier than creating a coin. Why? You don’t need to write a blockchain protocol from scratch, but you can stick to the instructions provided by a specific platform.

What is token coin? It is time to discover some great examples of crypto tokens. 

Tether (USDT)
USDT is the coin tied to the US dollar, designed to offer price stability in the volatile crypto market. USDT is commonly used for quick fund transfers between crypto exchanges without needing to convert to fiat currency.

Chainlink (LINK)
It is an oracle network that is decentralized. Users of this network apply LINK tokens to pay for data services.

Uniswap (UNI)
It is one of the largest decentralized exchanges. The UNI token holders can participate in platform governance and influence its future developments.

Wrapped Bitcoin (WBTC)
A tokenized Bitcoin version on the Ethereum blockchain. WBTC enables Bitcoin to be used within Ethereum's decentralized applications, offering greater flexibility and a 1:1 peg to the original Bitcoin.

Aave (AAVE)
Aave is a decentralized finance protocol that enables crypto lending and borrowing without a centralized intermediary. Aave is developed on the Ethereum network, and all of its transactions need AAVE tokens.

The general difference between сoin and token is the blockchain they are created on. For a coin vs token, the presence of own blockchain is a mandatory condition.

If we compare a coin vs token, both can be considered investment assets, which is associated with the potential for growth in their value in the future.

Tokens can provide diverse use cases, unlike coins. The last ones are primarily used for exchange and storage of value.

These digital assets operate on their own blockchain, granting them complete control and autonomy from other networks. On the other hand, tokens are tied to the blockchain they are created on, relying on that platform’s infrastructure and consensus rules. 

Coins are often used for payment, digital transfers, and investment purposes. 

• Digital transfers. With coins, digital transfers are fast, cheap, and cross-border. This is a distinctive feature of crypto compared to traditional payments.
• Payment system. In a number of countries, it is possible to pay with cryptocurrency when buying goods and services.
• Investment. Also, coins are a good financial instrument. Here, it is up to you: trading or investing. Some coins like Bitcoin are called digital gold because their issue is limited, and therefore, owning them can bring very large dividends in the future.

What is token cryptocurrency? There are various token types and their applications, except for payment services. Let’s consider the main of these types.

• Payment tokens. The token can be applied like a coin to pay for services or goods.
• Stablecoins. These are tokens whose value is pegged to another asset at a 1:1 ratio. This asset can include stable items like government currencies (US dollar), precious metals, or securities. Traders and investors often use stablecoins to trade and diversify their portfolios.
• Governance tokens. The digital assets that give the holder the opportunity to participate in making key decisions on the development of a blockchain project. These tokens also give holders the right to put forward their own initiatives and ideas. Today, governance tokens are popular in the decentralized finance and GameFi spheres. The top governance tokens are UNI (Uniswap), AAVE (Aave), and SUSHI (Sushi).
• Non-fungible tokens. They represent ownership of diverse digital assets like art, music, collectibles, and more.  
• Utility tokens. Such tokens are like a kind of pass to the functionality of various platforms. They are developed for the purpose of performing tech functions and have no value.
• Investment tokens. This can be compared to traditional growth stocks in the market. Investors purchase the token early, anticipating its value will increase over time.

Coins and tokens do not come without certain limitations that should be solved in the future. What are they?

Both coin token can experience issues with scalability. Networks grow, so the transaction speeds decrease and fees rise. This issue is still open to resolution.

It is another big challenge. Inconsistent and unclear regulations across different countries can create legal obstacles for users and developers.

While blockchain technology is secure, since time immemorial, hacks, smart contract vulnerabilities, and phishing attacks still pose threats to both coins and tokens. This is why it is so essential to follow proper security protocols.

Comparing crypto coins vs tokens, they both are subject to significant market volatility. So, these assets are quite risky to invest. Why? Prices are influenced almost unpredictably by factors such as market sentiment, regulation, and technological changes.

As demand for blockchain networks increases, congestion can occur. This leads to slower transaction processing times and higher fees for both coins and tokens, particularly during periods of high demand.

Is there any way to quickly understand whether a particular digital currency is a coin or a token?
We have prepared a guide for you.

Coins primarily function as digital money. They are meant for buying goods or services, transferring value, or holding as an investment. 

What is coin token? Tokens usually serve a specific purpose within a particular project or platform. They can represent anything from assets, rights to vote, or access to services within that ecosystem. Tokens are typically tied to specific use cases.

In most cases, coins vs tokens are used for transactions and to store value. If you can use a cryptocurrency to pay for things or hold it like an investment (like Bitcoin or Ether), then it is a coin.

Tokens are typically used within a specific platform or service. If the asset is part of an app or decentralized platform (such as for governance, rewards, or special access), then it is a token.

Coins are supported by their blockchain. For instance, Bitcoin runs on the Bitcoin blockchain, and Ethereum works on the Ethereum blockchain. If the asset is running on a separate blockchain, it’s a coin.

Token coins rely on other blockchains for support. If the asset exists on a platform like Ethereum or Binance Smart Chain and doesn’t have its own blockchain, then it’s a token. Tokens are created and managed within these existing networks.

Coins are often the most recognized and are typically associated with mainstream cryptocurrency discussions. For example, Bitcoin (BTC) and Ethereum (ETH) are big names in the crypto space.

Crypto token vs coin is typically a part of newer projects or ecosystems, so tokens might not be as widely known.

If you're holding or using the asset for general transactions or as a store of value, it’s most likely a coin. Coins can be traded, spent, or held on various platforms. If the asset is being used for a specific service, like participating in a decentralized application, gaining access to a platform, or voting in a governance system, it’s probably a token. Tokens are typically integrated into specific projects or communities.

It is difficult to put forward precise theories here, but some blockchain trends for the coin token future are obvious.

Decentralized finance and financial apps built on blockchain technology will continue to develop. Decentralized finance platforms will transform even more traditional financial systems (such as loans, insurance, and exchanges). So, the need for tokens and coins in this field is expected to grow.

Unlike crypto coins like Ethereum or Bitcoin, which are fungible and can be exchanged one-to-one, NFTs are unique and cannot be exchanged one-to-one. This uniqueness and verifiable authenticity make NFTs ideal for collectibles, digital art, and even real estate. 

The NFT trend is expected to spread across various industries, including gaming as well. Did you hear about the HMSTR token of the popular Telegram Mini App game Hamster Kombat, which has recently been listed on the top exchanges?

Many countries, such as Sweden, China, and the European Union, are considering the idea of ​​launching their own digital cryptocurrencies, known as central bank digital currencies (CBDCs). 

These digital assets would be issued and managed by the central bank of the respective country. CBDCs could offer a more efficient, secure, and inclusive financial system.

What is tokenization? This means the process of transforming real-world assets or rights into virtual crypto tokens on a blockchain. These tokens represent ownership or claims to a specific asset, for example, a property, and can be traded, transferred, or stored in a decentralized manner. We can wait for more projects and emerging tokens/coins in the tokenization field.

Our team is proud of many years of experience in blockchain project development, crypto exchange creation, and other custom solutions. If you need help with the creation of a coin token, we are definitely your reliable partner for project implementation.

One of the top projects we crafted is Quan2um cryptocurrency exchange. We created this platform so it will be easy and convenient for users to buy and sell Bitcoin, Bitcoin Additional (BTCA), and other popular altcoins.

The platform was developed using a proven tech stack that meets European security standards.  In addition to offering traditional crypto trading, we implemented the native coin of Quan2um, BTCA, which users can invest in to receive passive income. The platform also features a multi-level commission system to reward traders and incentivize new user registrations.

Let's summarize - this is what the client received at the end of our collaboration: 

• Efficient resource management system: A powerful and flexible admin panel to manage resources and roles efficiently.
• Trading core & matching system: A robust system to match buy and trade orders between users.
• BTCA investment feature: A unique opportunity for users to invest in BTCA and earn passive income via masternodes.
• Referral program: A multi-level commission system that encouraged user growth and engagement.
• Secure and reliable platform: Ensured high security for user assets with cold and hot wallet management and encryption.

Another great example of our professionalism is the project Swych. Another feature-rich and user-friendly decentralized crypto exchange that resembles the well-known PancakeSwap DEX. Our main aim was to enhance the functionality of the platform and make the design outstanding. 

The Swych platform goes beyond simple token trading. This solution enables users to contribute to liquidity pools and participate effortlessly in yield farming. With our advanced development strategy and the use of a robust tech stack, including Solidity, we deliver a comprehensive and enhanced decentralized exchange experience that attracts users and generates profit.

From this brief, you now have an understanding of what a token and a coin are. Comparing crypto coin vs token, a token is an asset that is created on a blockchain network, while a coin is an asset of the blockchain itself. 

If you need cryptocurrency development services, we are always here to help you. We will help you determine what exactly is best to create - coin vs token - specifically for your project and conditions.

What do you do if you have ambitions to start the next great crypto project? Just contact us, and let’s begin the implementation of your idea together!