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Most people entering the blockchain market have been confused by the terms tokens and coins. In fact, coins and tokens both seem to be quite similar to each other to some extent.
Both coins and tokens can be called cryptocurrency. However, in certain cases, you can only use coins, and on the other hand there are also a few utilities that can only be used with tokens. This article will explain in detail and distinguish coins and tokens for newbies.
What is coin?
Bitcoin was the first cryptocurrency, and since its inception, it has set the benchmark for a cryptocurrency.
A coin is defined by the following characteristics:
- Works on its Blockchain network: There should be a Blockchain algorithm that tracks all transactions, changes that arise on the original cryptocurrency. This happens in other currencies such as ETH as follows: When you use ETH for payment, the receipt will be transferred to eth’s Blockchain network, if the person then refunds you in Bitcoin, then the same thing will happen on the ETH Blockchain network. All of the above transactions are encrypted protected and any member of the network is accessible.
- Works like regular currency: Bitcoin or digital currency is both created with the sole purpose of replacing traditional currencies. For example, you can use it to make payments when making a purchase or using a service. In other cases, there are many large corporations Amazon, Microsoft and Tesla that have accepted payments in cryptocurrencies, most recently Bitcoin is recognized by El Salvador as the official currency next to the DOLLAR. The inexplicable appeal of transparency and anonymity has inspired the birth of a host of other digital currencies such as ETH, NEO, and Litecoin.
- Can be mined: You can check coins in two ways: Through Proof Of Stake or traditional mining on a decentralized platform (Proof of Work).
What is token?
Technically, tokens are also a cryptocurrency or coin-like asset. The most obvious difference, however, is that the token does not have its own blockchain network and must run on the blockchain platform of another cryptocurrency similar to defi projects.
Tokens have a lot of useful functions such as being able to be traded or hoarded as a digital currency and support trading, Decentralized exchange rare items in video games.
What’s the difference between token and coin?
While transaction coins are processed and tracked by its own blockchain platform, when trading tokens, users depend on smart contracts, which are a series of codes that support payment transactions for users.
Each Blockchain platform uses its own code, for example Ethereum uses ERC-20 and NEO uses Nep-5. When a token is used, then it runs from one address to another, and NFT is a great example of this.
NFT or non-fungible token by its name we can tell it is a type of token. How ever, NFTs are unique items, that means each NFT is different from another in terms of the data they carry. Some NFT are of only spiritual or artistic value. So, in some ways, NFT has similarities to tokens to some extent except that it cannot be used for payment. When the transaction takes place, only the the owning account of a NFT changes and is recorded by the Blockchain system.
The next notable difference lies in what they stand for, while coins are versions of currencies in digital form, tokens can represent assets or documents. In other words simply, tokens are understood as what you own, while a coin represents what you are likely to own. In fact, tokens were born and existed for a long time, before coins appeared, even if they didn’t have much to do with Crypto.
We’ve all owned and used tokens on a given occasion, for example dinner vouchers are sent into emails. Or when selling a car, you need to transfer the documents of ownership of that car for money. But with that, you can’t go to Microsoft to shop and pay with vouchers or dinner vouchers.
How to Trade – buy and sell coins and tokens
If you don’t have cryptocurrency yet, you can buy coins with fiat via Binance P2P If you already own any coin or token, the good news is that you can trade it at centralized exchanges such as Binance, MEXC, FTX, Kucoin,…
Conclusion
Although it is the same cryptocurrency, there is a fundamental difference between a coin and a token : the coin has its own network and the token must depend on the coin’s network. Hopefully the article has provided full knowledge about the similarities and differences between tokens and coins. See you in the next article.
