Coin or token? Understand the differences

Almost everyone has mixed a token with a coin during their bitcoin adventures.

In principle, a coin and a token are quite similar. They both symbolise value and have the ability to accept payments. Coins can be exchanged for tokens and tokens for coins.

The main difference between them is how they can be used.

Token – definition and use

Tokens run on blockchains of cryptocurrencies such as Ethereum. BAT, BNT, Tether and various stablecoins are some of the most common tokens found in Ethereum.

The difference between tokens and coins is that coins do not move. Only account balances change. Your money doesn’t move anywhere when you transfer it from one bank to another. The bank has changed the balances of both accounts, while keeping the fees. The same thing happens with a blockchain: your wallet balance fluctuates and the transaction captures it.

Another intriguing aspect of the chips is how easy they are to make. Some networks, such as Ethereum, provide templates that you can customise and trade your tokens. Anyone with little or no technical skills can become a market maker.

Coins – definition and use

When bitcoin first appeared, it set the standard for the concept of a coin. Cryptocurrencies are distinguished from tokens, which are similar to real-world money, by several different characteristics.

1. It is based on a blockchain. The blockchain records all transactions related to the native cryptocurrency.

The Ethereum payment receipt is stored on the Ethereum blockchain. The receipt is added to the Bitcoin blockchain if the same person subsequently pays with Bitcoin. Each transaction is encrypted and can be accessed by any member of the network.

2. It has a monetary function. Bitcoin was created with the express intention of displacing existing money. Other currencies, including ETH, NEO and Litecoin, have been motivated by the twin attractions of transparency and anonymity.

Many large companies such as Amazon, Microsoft and Tesla now accept cryptocurrencies as payment for goods and services. In El Salvador, bitcoins have become the official currency and the US dollar.

Summary

The difference between a token and a coin is not huge, but if misunderstood it can cause a lot of confusion. By paying attention to what you are buying, you can easily determine which one you should use. In the case of a product, you will almost always need coins. If it’s a service, utility tokens are often available.