Surely most people entering the market have a question about why some Crypto is called Coin and others are called Token. In this article, Weakhand will explain the difference between Coin & Token in the Crypto market in the easiest way to understand.
What is Coin?
Definition of Coin
Coin is a type of Cryptocurrency issued by a Blockchain and is used for purposes such as paying transaction gas fees, security, decentralizing the network, rewarding operators,… and many other activities. other on that Blockchain.
With many uses in such an ecosystem, each Blockchain only issues a single Coin to meet the above needs. Therefore, the value of Coins based on market capitalization also reflects a lot about the health and potential of that Blockchain.
In addition, a nominal Coin can still be used to operate many different Blockchains. The most typical example is Doge Coin (a Blockchain similar to Bitcoin) launched in 2013 with the purpose of being used on its own Blockchain, however in 2022, a group of engineers wrapped DOGE for use. Use them as transaction fees on Dogechain (an EVM-compatible Blockchain).
The most popular coins
Bitcoin
Bitcoin is the first Blockchain created in 2009 by founder Satoshi Nakamoto with the goal of becoming a decentralized, decentralized, uncontrollable electronic payment network to replace payment methods at that time. currently in Fiat.
The Bitcoin Blockchain Coin is BTC which is used for the following purposes:
- Block Rewards: BTC is used to reward miners who participate in validation in the Proof of Work network. The reward will be given to whoever solves that block the fastest and will be halved every 210,000 blocks.
- Gas Fees: All money transfers on the Bitcoin network need to use BTC to pay gas fees to transaction validators (Nodes).
- Main currency: In addition, BTC is also the main currency for the Incriptions economy on this network with BRC-20 and NFT.
Ethereum
Ethereum is the 2nd largest Blockchain currently if we calculate by the market capitalization of ETH Coin (only after BTC). This network was launched in 2015 by Vitalik Buterin and his colleagues with the purpose of allowing smart contracts to run on it.
Unlike Bitcoin and most other Blockchains where the Coins are only used for the platform itself, Ethereum is also used as a fee on its own Layer 2s. Each Layer 2 is a separate Blockchain designed to enhance Ethereum’s scalability while still maintaining decentralization and security.
What Are Tokens?
Definition of Tokens
Tokens have appeared before Coins in the traditional financial market and depending on their intended use, they have different definitions such as:
- In payment: Tokens often refer to forms of cards or small objects used as a substitute for cash or valuable documents, these Tokens are often used in arcade games or in buses and subways.
- In information security: Token in information security is often a device used to authenticate user information in a computer system.
- In the Loyalty and rewards model: Many customer loyalty programs use Tokens (reward points) to encourage and recognize customers. Customers accumulate Tokens through transactions and can then exchange them for goods, services or offers.
In the Crypto market, Tokens are issued on one or more Blockchain platforms using certain standards. The uses of Tokens are as diverse as in the traditional market, however they are often used for financial purposes of a protocol.
The most popular Tokens
Uniswap
Uniswap is a decentralized exchange (DEX) launched in 2018 with the UNI token issued on the ERC-20 standard of the Ethereum Blockchain. Currently Uniswap is the largest DEX platform on the market if we consider factors such as transaction volume and total value locked.
The UNI token is currently used for governance purposes, holders of this Token will have the right to participate in voting on proposals issued from the DAO. In the future, it is likely that UNI holders will have additional privileges such as sharing huge revenues from the protocol.
Chainlink
Chainlink is an Oracle platform used to bring real-world price data to the DeFi world. Chainlink does that through the use of a network of many different Nodes, which are decentralized by staking the LINK token.
LINK is also a token issued on the Ethereum network using the ERC-20 token standard so it can be customized for different uses. In addition to being used to operate Nodes, Chainlink is also used to participate in voting on proposals.
The Difference Between Coin & Token
About applicability
As mentioned above, Coin often has many different applications in its ecosystem, especially the use of Coin as transaction fees on Blockchain. For that reason, anyone participating in a Blockchain ecosystem needs to hold a certain amount of Coin in their wallet.
The applicability of Tokens is much less than that of Coins as they often only revolve around the purposes of the protocol that issued them. However, there are also some types of tokens that are also used by many different protocols such as Liquid Staking Token (stETH, rETH,…) or Liquidity Provider Token (GLP, gDAI,..) and Stablecoins like DAI.
Technically
To build and issue a Coin requires many different factors related to finance, people, etc. because a Blockchain needs to meet many different technical and security factors. Because simply if the network is attacked, all projects built on it will have problems.
Issuing a token is much simpler when anyone can do it, there are even many parties that provide available source code so people can just copy and paste to deploy. your own token.
Coin Can Also Be Token and Vice Versa
In fact, the definitions of Coin and Token as mentioned above are not completely accurate in all cases. Take, for example, Layer 2 coins such as ARB or OP when they are issued by the Blockchain platform itself but are not used as transaction fees but instead are ETH.
There are also many other examples such as ETH itself is the fee coin for Ethereum and the Layer 2s above it, but when ETH is wrapped and transferred to other Blockchains, its properties will be no different from a Token. .
Summary
Above is an article explaining the difference between Coin & Token from Weakhand. Hopefully, through this article, people will find useful information as well as distinguish between Coins and Tokens.
