Types of Cryptocurrency: Coins vs Tokens Explained

The world of cryptocurrency is changing rapidly and a variety of digital assets are emerging. In this regard, it is important to know that there are generally two broad categories: units that have their own blockchain (called “coins”) and units that are built on other blockchains (called “tokens”). Understanding the difference between the two can help investors, developers, or just curious people make better decisions. The goal of this article is to provide you with a clear understanding of the basic definitions, structure, workings, and usage examples of coins and tokens.

The term “cryptocurrency” is used to refer to digital currency that operates on a blockchain network, without a central authority.

But when you talk about coins and tokens, the details come into play, such as which asset is part of which blockchain, for what purpose, and how it circulates in the system.

“Coins” are generally cryptocurrencies that have their own blockchain. For example, assets that run on a blockchain that they have created themselves — these are called coins. For example, Bitcoin is a cryptocurrency that has its own blockchain and essentially functions as a digital currency. A key characteristic of coins is that they are network-based, meaning they become part of the network through mining or similar processes.

In addition, coins often have a defined supply, a specific network consensus mechanism, and are primarily intended for trading or storage. Since they have their own blockchain, the network controls the internal tokens and their development strategy is relatively simple. Therefore, coins are considered the core of digital currency.

On the other hand, “tokens” are digital units that do not have their own blockchain but are created on another blockchain. For example, a blockchain already exists, and tokens are issued on it through a smart contract. These tokens are not part of their own blockchain network, but rather act as a utility, representation right, or service.

Here are some of the main uses of tokens: they can grant specific rights within a project, provide users with access to network services, be part of governance, or represent digital assets. That is, tokens are not just created as currency, but are designed for various purposes. Because of this, their model is quite flexible, but they do not form the basis of a blockchain network, but rather become part of it.

The main difference between coins and tokens

The difference between coins and tokens arises in several aspects. First, as mentioned earlier, coins operate on their own blockchain, while tokens use another blockchain. This means that coins can form the basis of a blockchain, but tokens require an existing network or blockchain platform.

A second difference is that coins are typically intended to be a currency, store of value, or facilitate transactions, while tokens have a variety of uses—for example, providing DeFi services, governance, utilities, or being part of other digital applications. This means that the quantity, nature, and usage strategies of tokens are more variable than coins. A third difference is that the supply of coins is often fixed or limited, while the supply and distribution model of tokens depends on the structure of the project. One academic study concluded that coins and tokens have exhibited different growth rates in market cap by value.

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Use Cases and Overview

When you look at the market, you’ll find examples of coins easily identifiable: cryptocurrencies, commonly referred to as “currency,” that users buy, sell, store, or trade. For example, Bitcoin, or other big-name currencies, operate on a blockchain that is considered the foundation of the network.

Tokens are a slightly different type of token. A token might be built on a blockchain that can be used to provide specific network features, governance voting, or utility. Since they don’t have their own blockchain, their development strategies are more variable and often project-based. It’s also worth noting that because tokens are more flexible in their model, their legal, technical, and security challenges can also vary.

Considerations

When you review “Types of Cryptocurrency,” it’s useful to keep a few key things in mind. First, the blockchain template or network should be understood is the asset on its own blockchain or on another blockchain? Second, the purpose of use is whether the asset is issued as a currency, as a utility, or on behalf of a specific project. Third, the supply, distribution, and governance model can vary, and these details often affect the asset’s value, security, and growth.

Furthermore, the nature of both coins and tokens presents different risks, opportunities, and use cases depending on the investment or use case. Since tokens are more volatile, they may be subject to greater technical, regulatory, or network-based risks. It is therefore important for users to understand this fundamental difference andLearn about the nature, basis, and uses of cryptocurrencies.

Overall, the study of “Types of Cryptocurrency: Coins vs Tokens” teaches us that cryptocurrency is not just one type, but has different models and uses. Coins are assets that have their own blockchain and are considered a common currency or digital store of value, while tokens are assets that are built on other blockchains and can have diverse uses. Understanding this difference helps those entering the crypto market make better decisions, whether they are investing or looking to develop.