Cryptocurrency token vs coins what is the difference?
Cryptocurrency coins and tokens are digital assets that work with blockchain technology. This means that transactions in both are recorded in an electronic and distributed ledger and verified by computers around the world. This puts them in contrast to stocks or real estate.
You can buy and sell both cryptocurrency coins and tokens online through a cryptocurrency exchange and store them in cryptocurrency wallets. Despite the similarities, coins and tokens are fundamentally different.
Coins are cryptocurrencies that are contained in a blockchain and are critical to its functioning. Cryptocurrency tokens are enabled by smart contracts that operate on an existing blockchain platform and can be traded like cryptocurrency coins.
In most cases, coins and tokens work the same way, and some cryptocurrency users may not know they are using one or the other. However, this fundamental difference affects the transaction costs and technical processes of the currency. Read on for a deeper look at cryptocurrency tokens and coins so you know the key differences.
What is the difference between cryptocurrency tokens and coins?
Cryptocurrency tokens and cryptocurrency coins sound like similar terms, but they are theoretically not the same thing. One is based on the existing blockchain to function, and the other is part of the blockchain in question.
How cryptocurrency coins and tokens work
Cryptocurrency coins operate on their own independent network. To get a new cryptocurrency network up and running, developers need to create a new blockchain and provide the infrastructure to run it.
As long as that blockchain remains online, so does the corresponding cryptocurrency coin. While the value of the coin remains highly speculative, the coin itself should last indefinitely as long as the blockchain has users and miners or validators to keep the system running.
Cryptocurrency tokens rely on a different network to function as a platform. This means that cryptocurrency tokens could not exist without the underlying infrastructure provided by the blockchain and associated cryptocurrency.
Think of it like this. You pay for a new house with money or a mortgage, but the deed is what gives you ownership of the house. The token is a contract that would not exist without the underlying monetary system. So in this case, the money would be the coin and the certificate would be a token.
Traditionally, cryptocurrency coins such as bitcoin and ether have been used to exchange or invest as assets. The Ethereum blockchain enabled smart contracts, clearing the way for tokenization.
Tokens are useful for many purposes, including stablecoins, gaming, initial coin offerings (ICOs), and creating new tradable assets. Stablecoins are cryptocurrency tokens that always follow the value of a specific fiat (government) currency like the U.S. dollar.
Pay for cryptocurrency coin and token transactions
Coin, token, and non-fungible token (NFT) transactions require cryptocurrency coins.
If you want to send someone cryptocurrency from your wallet or make a transfer between two wallets or your own accounts, you will most likely have to pay network fees, sometimes called gas.
Network fees are paid with the primary coin on the blockchain. For example, if you want to send Ether (the name of the Ethereum coin) to a friend, you need to set aside some Ether to pay for the transaction. Gas fees are typically charged as a small fraction of ether, called gwei.