The cryptocurrency world has so many terms that people are not conversant with. When investing in cryptocurrency, you may come across phrases like coins and tokens. In most cases, some people use them interchangeably but they do not mean the same thing. These are different concepts in the cryptocurrency system. Since there is no crime in using these terms to mean the same thing, you would want to know the difference if you are serious about crypto trading. Our experts want to use this opportunity to help you grasp the difference between these two terms.
What Are Crypto Coins?
Coins, in reference to cryptocurrencies, are developed on their independent blockchain platform. Bitcoin is one of the most common coins and is considered the largest in the crypto market. Br and Ethereum are the other types of cryptocurrency coins and each of these is powered by its own blockchain. The native blockchains may be different in terms of rules, size, performance, and miners. These coins are similar to the physical currency coins and their purpose is to transfer value.
With crypto coins, you can be able to make payments and store value. One of the key differences between digital coins and physical ones is that cryptocurrencies are quite volatile in terms of their value. In most cases, the value of the coins is determined by the demand and supply of the coins. You can mine these coins and can also accept them as a form of payment.
What Are Crypto Tokens?
Now that we know what digital coins are, let us get to the tokens. Cryptocurrencies that do not have native blockchain networks are known as tokens. This means that they are built and run on other blockchain platforms. There are quite many tokens as users can create them using the decentralized finance system. Ethereum is a good example of a cryptocurrency that is a coin and also available as a token. The fact that it supports smart contracts makes it a perfect example of crypto tokens. Ethereum supports the creation of digital tokens on its blockchain.
At the moment, there are thousands of tokens on the market including USD Coin, Tether, UMA, Basic Attention Token, and so many others. The beauty of tokens is that they have more functions than just the transfer of value. In most cases, digital tokens are used as a mode of payment. BAT is one of the tokens used to reward customers who visit the Brave browser and view ads. Crypto tokens are created for different purposes and there are so many of them out there in the market.
Coins vs. Tokens
In essence, for an average person, there seems to be no difference between cryptocurrency coins and tokens. However, from what we have learned, when trading on BitQT, you need to know the difference between the two. In a nutshell, the core differences are:
- Tokens are built on the existing blockchain networks while coins are based on their native blockchains.
- Creating digital coins is a more complicated task as tokens can easily be created on the existing blockchain platforms.
- Cryptocurrency coins are mainly used for processing payments, while digital tokens offer a wide range of functions.
- Most digital tokens gained traction through ICOs while coins are distributed through mining and other forms of crypto trading.
Final Thoughts
Cryptocurrency is a market that needs to be approached with caution. Grasping the basics of market operations will give you an upper hand. Now that you know the difference between crypto coins and tokens, you are in a better place. When you are investing in any cryptocurrency, you will be able to tell if it is a coin or a token.
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