What is a Coin? Understanding this fundamental concept is essential for anyone participating in the cryptocurrency market. Therefore, in the following article, Tonraffles will delve deeper into this concept and help you distinguish between Coins and Tokens in Crypto.
Investing in cryptocurrency, investing in coins is increasingly attracting many participants. However, among them are many new, small investors who do not fully understand the issues related to coins, leading to losses and debts. So what are coins and how do they differ from tokens?
Table of Contents
Understanding what a coin is
Coin, also known as Altcoin or Cryptocurrency Coin, is a type of digital currency that is considered equivalent to traditional money. It is created through cryptographic techniques, stores value over time, and is shared among participants on the blockchain network.
Coins possess features such as being a unit of payment, exchange, reward, security, governance, etc., issued directly by the blockchain. Each blockchain has only one type of coin, such as Bitcoin‘s coin being BTC, Ethereum’s coin being ETH, and Litecoin’s coin being LTC.
However, the term “coin” can be understood in different ways. Some people consider it to refer to tokens listed on centralized exchanges (CEX).
What is a token ?
Not only is “coin” a common term, but when it comes to cryptocurrency investment, you’ll also hear a lot about tokens. Tokens are not a new concept; they existed before the advent of blockchain. In the traditional economy, tokens represent various forms of economic value, such as coupons, reward points, gift cards, stocks, bonds, etc. Nowadays, in the crypto market, a token is a digital currency issued and operated based on blockchain technology. A project can issue tokens on multiple blockchain platforms.
Currently, there are many types of tokens classified in various ways. Among them, the most common are Governance tokens, which increase voting rights in DAOs (Decentralized Autonomous Organizations), and Utility tokens, which provide access to specific services/products developed by the token issuer.
Distinguishing between coins and tokens
What are the similarities between tokens and coins?
Coins and tokens both represent specific projects, issued and used within blockchain networks.
The difference between coins and tokens
Apart from the similarities mentioned above, there are many differences between coins and tokens.
About features
Coin: Used as a form of currency, a unit of value storage, and for transactions.
Token: Has a wider range of uses than coins. In addition to payment functions, it can serve as fuel for a functioning network, an exchange unit within an application, security features, governance, and NFTs.
Technical aspects
Each coin is developed on its own wallet, and when transactions are made, the transaction fee is deducted directly from that coin’s wallet. Tokens, on the other hand, do not have their own wallets; they use the wallet of the underlying coin.
Therefore, transaction fees are deducted from the underlying coin.
Upon issuance, coins usually have a zero supply and are gradually created over time. Meanwhile, most tokens are created with a fixed total supply available from the initial issuance to the market. Coins can only represent a single blockchain. However, tokens can be issued on multiple blockchains as determined by the project.
Applications
Coin: Initially created to replace traditional currency. However, over time, as more different coins have developed, coins have also been widely used for storing value, paying for goods/services, transferring funds, and exchanging for other currencies.
Token: Users can use tokens in various ways such as buying, selling tokens, participating in DeFi activities (staking, farming, lending, borrowing, etc.).
Some famous coins nowadays
Bitcoin (BTC): Bitcoin was created by an individual or a group of individuals under the pseudonym Satoshi Nakamoto in 2009. It is currently the largest cryptocurrency by market capitalization, supported by many investors and organizations over the past few years. Ethereum (ETH): Considered as the backbone of decentralized applications (Dapps) and smart contracts, Ethereum is a prominent name in the crypto world. Its future holds a lot of potential for development as its applications become increasingly widespread. Dogecoin (DOGE): Known as the king of Meme coins, DOGE is now also used as a means of payment, not just as a cryptocurrency, thanks to the world’s richest man, Elon Musk. Ripple (XRP): A coin used to represent value transfer on the Ripple network. This cryptocurrency is specifically designed for businesses, financial institutions with cross-border transaction liquidity.
In conclusion
Above are the explanations of what a coin is and the similarities and differences between a coin and a token. Hopefully, through this, you have gained more useful knowledge and a better understanding of the crypto market.
