In the world of cryptocurrencies the terms coin and token are often used interchangeably. However, whilst similar there are distinct differences between what a coin and token is, this article aims to define what the differences are between each and give examples.
What is a coin?
Coins, as the name suggests are intended to be used for financial payments and as a replacement for cash, they can be used as a unit of exchange and a store of value. Examples of coins would be Bitcoin (BTC), Litecoin (LTC), and Dash(Dash). Most often they will have their own blockchain and not be built on another platform like Ethereum. Some would argue that this is the most important definition and that a coin must not only be a medium of exchange but must have its own blockchain. This is the definition used on Coinmarketcap where it is possible to filter the list of cryptocurrencies by coins or tokens. Filtering by coin just shows those on their own native blockchain. The list shows the top 5 coins as of publishing on CoinMarketCap.
What is a Token?
Tokens are a type of cryptocurrency that is generally built on top of other blockchains and rather than being a general means of transaction have a much more specific purpose. Conceptually tokens are not dissimilar to store cards they allow additional benefits for users versus other make payment methods and can be used to promote brand loyalty and specific behaviour. For example the Substrate (SUB) token is based on the Ethereum blockchain and used by Substratum as a method of reward for those sharing computing resources to host their decentralised web platform. Another example would be oCoin which pays you as you cycle, these clearly demonstrate use cases where tokens can be used to encourage specific behaviour and encourage brand loyalty.
The graphic below shows the top 5 tokens from CoinMarketCap. The first thing to note is that the list is different to that of the top 5 coins, demonstrating that coins and tokens are different. CoinMarketCap uses for its definition of a token that it’s a cryptocurrency built on top of another blockchain, next to each token you see the blockchain that it is built on top of.
Tokens can also be used as part of a funding strategy for a business. In order to expand and grow a business it may take in additional funding through an ICO which is a type of crowdfunding. In an ICO participants exchange their fiat or cryptocurrencies for the token, ICO’s have been discussed previously in detail
Coin vs Token Conclusion
Whilst this article has provided strict definitions of the differences between coins and tokens in the real world the differences may be harder to spot. But for simplicity remember exchange of value and being on their own blockchain are characteristics of a coin whereas tokens have more specific cases and use another blockchain as a platform.