What is Coin? What is token? These are two concepts that are often understood synonymously in the crypto market. But in reality coin and token have different nature. To be able to distinguish these two concepts to avoid confusion, in today’s article we will explain in detail for you to understand.
1 – What is Coin?
Coin or crypto refers to cryptocurrencies created and developed by computer algorithms and operating on a separate blockchain technology platform.
Bitcoin (BTC), Ethereum (ETH),… are all referred to as coin or crypto. With each of these coins, they have a separate blockchain platform, not working together on another coin’s blockchain.
2 – What is token?
In the crypto market, when it comes to the concept of tokens, it means digital assets that operate on another project’s blockchain. For example, the Chainlink project’s LINK token works on the Ethereum blockchain.
As you can see, Ethereum (ETH) operates on a separate blockchain platform, so Ethereum is the coin.
And LINK works on the blockchain platform of ethereum, so LINK is the token.
However, if in the future LINK develops a separate blockchain platform and separates from the ethereum blockchain, then LINK will become a coin.
Basically, coins and tokens on the exchange can be bought / sold equally.
3 – Differentiate coin and token
The simplest way to distinguish coins and tokens is to see the blockchain platform information of that coins/tokens.
If a crypto project develops a separate blockchain platform and is already on the exchange, it is a coin.
Conversely, if a crypto project develops on the basis of another project’s blockchain technology, it is a token. Tokens often have many different standards such as ERC-20, ERC-223, ERC-721, etc.
4 – Types of tokens
Tokens not only have a buy/sell transaction function like a coin, but also many other functions. So tokens are divided into several types as follows:
Security Token: This type of token is in the form of an electronic stock. Those who own it will benefit from the project.
Transactional Token: This type of token is essentially the same as a coin, its function is used to transact as currency in the project’s ecosystem.
Utility token: the purpose of generating this token to serve a specific feature for the project. For example, payment features, voting features, discount features in the ecosystem.
Governance token: this is used to vote on decisions in the project.
NTF Token: this is a non-replaceable token. This means that these tokens are used to create unique and irreplaceable digital assets. For example, a picture created by the NFT token ensures uniqueness, there is no second picture in the same ecosystem.
5 – Advantages and disadvantages of tokens compared to coins
5.1 – Advantages
Tokens does not need to be mined to create a supply like coins.
Issuing tokens is simpler than coins, project owners only need to create smart contracts and then apply them on another project’s blockchain platform.
There are many different functions such as receiving interest, voting, staking, etc.
5.2 – Disadvantages
The token supply is generated by the project owners at the start of the launch. Unlike coins, the supply of coins is created during mining over time. Therefore, when investing in tokens, there is a high risk, if the project owner sells the tokens.
Tokens transactions are subject to transaction fees in coins of the original blockchain. If a project works on the ethereum blockchain, when trading its tokens, it will have to pay transaction fees in ethereum (ETH) coins.
6 – Should you invest in coin or token?
Tokens or coins both have certain potentials and risks. Investing in the most important coins or tokens is in the development potential of the project, the applicability of the project. To make decisions, you must have the knowledge and skills to analyze information.
If you are not a sensitive person, you should only invest in top coins when these coins are in a downtrend.