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Crypto Token vs Coin: Two different peas in the same pod

Crypto Token vs Coin: Two different peas in the same pod

Crypto Token vs Coin: Two different peas in the same pod

Tue May 31 2022 08:00:00 GMT+0000 (Coordinated Universal Time)

The digital age has pushed many people to develop great things for the common good. One of them is cryptocurrency, a digital currency that serves as a medium of exchange for goods and services. Moreover, this advancement operates in a public ledger known as the blockchain where it runs and tracks all transactions made by users. 

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Bitcoin is known for being the first crypto that came into existence. After its emergence, more virtual currencies have entered the crypto market such as Ethereum, Litecoin and more. But what a lot of people don't know is that cryptocurrencies are divided into two types: tokens and coins. These have close similarities but function differently. Know the difference between crypto token vs coin when you continue reading this article.

Crypto token vs coin: What are their differences?

It is a common misconception to think that a crypto token vs coin are the same since both have value. As such, people would assume that all crypto coins are tokens, but in reality, it does not work that way. This is because the difference between coin and token lies in their operation and use. 

Crypto token vs coin: What is a crypto coin?

The emergence of Bitcoin in 2010 has set the standards and definition of a crypto coin. These can be divided into three factors, and they are as follows:

  1. Crypto coins operate on a blockchain

Blockchains are public decentralised ledgers shared among a network of computers. Here, all users have access to see the transactions that happened throughout time, which makes it an online database. Moreover, this technology is created to eliminate a central third party that controls assets and facilitates transactions. 

With a centralised system, it can lead to poor security and make it prone to breaching, theft and tampering. As a solution to this problem, blockchain technology is created to provide individuals with direct access and control over their finances.

How does blockchain work?

As its name suggests, blockchain consists of multiple blocks, and each one has digital data of every user’s transactions. Everyone who is part of the blockchain has the responsibility of verifying these transactions. 

Aside from decentralisation, blockchain technology is created to prevent all transactions from come as unchecked. Everyone who has access to this public ledger is required to verify every exchange of cryptocurrency. Additionally, the security of this system is further enhanced since every block contains a stamp known as the hash. This is a code containing information on transactions stored in one block. For someone to hack this, they need to match the hash of all blocks, which will take a long time, making it impossible to achieve.

  1. Crypto coins act as fiat replicas or a currency of itself

Bitcoin was created as an alternative to fiat currency to purchase goods and services from various merchants and platforms. To have an idea, here is a list of what you can use your crypto coins for:

  • Car dealerships Betting at an online casino
  • Technology and e-commerce products
  • Expensive accessories such as jewellery and watches
  • Subscription to news outlets
  • Life insurance funding.

Aside from these, a lot of businesses are opening their doors to accept cryptocurrency as a form of payment. Moreover, in El Salvador, Bitcoin became an official currency apart from the US Dollar. Bitcoin’s transparency and anonymity feature inspired other developers to produce more crypto coins to cater to a wide range of users.

  1. All crypto coins are mineable

Mining is the process of minting new coins and earning cryptocurrency by solving complex mathematical puzzles. This is possible with the help of miners who verify transactions before including data in the blockchain. In return, they receive cryptocurrency.

There are two ways to mine crypto coins—through Proof of Work and Proof of Stake methods.

Proof of Work

During this method, the mining process starts when a new block is proposed in the blockchain. From there, the header of the most recent block is combined with a number used only once (nonce) to create the hash of the new block. Then, the miner has to find the answer to a comprehensive mathematical puzzle and the correct computation will serve as the proof of work.

If the resulting hash is less than or equal to the Target Value, the miner has successfully solved the problem and receives crypto coins as a reward. On the other hand, a hash greater than the Target Value will prompt the miner to repeat the calculation.

Proof of Stake

Proof of Stake is another mining method created to solve the problem of using too much electricity in Proof of Work. Instead of having a lot of miners participating in the blockchain, the Proof of Stake limits its validators through staking. With this, users in the blockchain stake their coins to the amount of crypto they want to mine. 

After staking, the cryptocurrency’s Proof of Stake protocol will select a node to review a new block. If their verifications and calculations are correct, the block will be added to the system and the user will receive newly mined crypto coins. 

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Crypto token vs coin: What is a crypto token?

Tokens are digital assets that represent what you own. Do crypto tokens have value? Can a token become a coin? These questions and more will be answered as you read the following sections below:

  1. Tokens do not have their blockchains

Compared to coins, crypto tokens do not have their blockchains to operate on. Instead, they are present in other blockchains. For instance, the Ethereum blockchain hosts a lot of tokens and these are all different from one another.

  1. Crypto tokens rely on smart contracts

While coins process their transactions through blockchain, crypto tokens use smart contracts. These are lines of codes that appear as ‘if-then’ statements and indicate the agreement between two parties. If all conditions are met by both parties, trade or exchange of possession will occur. 

  1. Unlike coins, crypto tokens can move from one place to another

When someone exchanges or buys crypto coins, their account balance changes. On the other hand, exchanging crypto tokens involves physical movements to show that the ownership has changed. The best way to explain this concept is to know about non-fungible tokens.

What are non-fungible tokens (NFTs)?

These are tokens present in the Ethereum blockchain and owning one represents digital ownership. The term, non-fungible, is used to describe things you own, which are objects that you cannot exchange for other items due to their unique properties. For example, you cannot simply exchange a leather couch for a laptop since both are completely different things individually. 

Most NFTs come in the form of digital artworks, which gives a stable income and recognition to artists and content creators. The most common one is the NFT trading cards in the esports industry. To own an NFT, you must agree to the smart contract that will occur between you and its current owner. Once both of you agree to the terms, the ownership of the NFT will be physically transferred to you. Everyone in the blockchain will know that this digital asset is now under your name.

  1. Tokens represent assets and deeds

While coins serve as the capability or power of owning, crypto tokens show you what you own since they are digital assets and deeds. Additionally, you can use crypto coins as a way to purchase some valuable tokens.

Crypto token vs coin: A summation of their similarities and differences

The disparity between crypto token and coin becomes clearer now that you know the unique characteristics of each. Both have value and are an active part of the crypto industry. Owning either one of them can increase your assets and net worth. With that being said, it is time for you to find out what are the top tokens and coins you should invest in the crypto market.

Top crypto coins list

Get to know the top crypto coins as well as their value in the market when you read the following section:

  1. Bitcoin

Bitcoin is the first-ever cryptocurrency that emerged in the market. Satoshi Nakamoto, its creator, released the digital currency to the public in January 2009. Its coins are all digital and no physical form is present. Moreover, Bitcoin uses the blockchain to record transactions.

As of now, the price of 1 Bitcoin (BTC) is equivalent to $42,023. Get started with your Bitcoin investment by buying BTC on exchange sites.

  1. Ethereum

Like Bitcoin, Ethereum is another cryptocurrency that operates on a blockchain. This system is present in multiple computers, and any changes here require a majority agreement with all the users involved. The native coin of Ethereum is Ether or ETH, and its current price of 1 ETH is equivalent to $3,171.10. 

The unique thing about the Ethereum blockchain is it can be used to create decentralised applications or dApps. These are digital applications that run on a blockchain of multiple computers instead of relying on just one. As such, they are free from the control of a single entity. On top of that, dApps provide the benefits of protected user privacy, lack of censorship and flexibility of development. 

  1. Litecoin

In 2011, Charles ‘Chalie’ Lee created Litecoin and used Bitcoin’s open-source code. This alternative cryptocurrency differs from Bitcoin because it has a faster block generation rate. Aside from that, Litecoin also uses Scrypt as a Proof of Work scheme. At its height, this coin became a constant rival to BTC and reached the 3rd best coin in the Coin Market Cap. However, its popularity has waned due to the saturation of crypto coins but it remains relevant nowadays.

Currently, 1 Litecoin (LTC) is equivalent to $108.06.

Top crypto tokens list

If you’re interested in crypto tokens, check out some of the top options you can invest your time and money in: 

  1. Tether

Tether (USDT) is a form of crypto token that operates on both Ethereum and Bitcoin blockchains. This is also a form of stablecoin, which is also a digital currency that pegs its values to an external reference. In this case, Tether is pegged to $1.00. 

  1. Uniswap

Uniswap is a popular decentralised exchange platform that allows you to trade digital assets. This system is hosted on the Ethereum blockchain, and UNI holders are the ones that govern it. Aside from that, this exchange platform uses an automated market maker (AMM) model, which strives to provide liquidity pools of smart contracts. As of now, 1 UNI is equivalent to $29.77.

  1. Chainlink

Chainlink is a platform that allows non-blockchain enterprises to connect with other blockchain platforms. In a way, it serves as a middleware that links smart contracts and external data. On top of that, its native currency known as LINK is used to reward Chainlink’s network operators. Above all, Chainlink operates on the Ethereum blockchain and 1 LINK is equivalent to $14.91.

Crypto token vs coin: Should you have both?

In conclusion, it’s ideal to have both crypto tokens and coins. It is better to build your assets digitally because there will be a time in the future when your possessions will multiply their value tenfold. The reason for this is that a single token or NFT cannot be duplicated, which means there is only one per item.

While investing in coins and tokens is great, you also need to keep in mind that you should wisely select which one is worth keeping. Doing so will make you reap benefits in the long run as soon as its value spikes to the ceiling.

Words by: Leira Lacuata

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Crypto Token vs Coin: Two different peas in the same pod