In the cryptocurrency world, there are coins and tokens. It took me several years to even understand that there was a difference between a coin and a token. Yes, by now everyone has heard of Bitcoin the first cryptocurrency ever created, but this blog post will help you obtain a well-rounded understanding of the two distinct categories.
Coins
Cryptocurrency coins operate on own individual blockchain. A blockchain is a distributed database that is shared among the nodes of a computer network. As a database, a blockchain stores information electronically in digital format. One of the most famous coins in the cryptocurrency world is Bitcoin, Bitcoin exists as a censorship-resistant store of value and medium of exchange that has a secure, fixed monetary policy. Ethereum and Avalanche are cryptocurrency coins that store value and validate transactions. These cryptocurrencies are examples of coins and not tokens. Currently, Ethereum is the best example of a cryptocurrency coin due to the amount of cryptocurrency tokens using its blockchain.
Tokens
Tokens are a unique outlay of broader smart contracts platforms like Ethereum that enable users to create, issue, and manage tokens that are derivatives of the primary blockchain. Cryptocurrency tokens don’t have their own blockchain. The transactions of crypto coins are handled by blockchain, whereas tokens rely on smart contracts. They are an array of codes that facilitate trades between two users. Each blockchain uses its multiple number smart contracts. When a token is exchanged, it is physically moved from one place to another. Non-fungible tokens or NFTs are the best examples to understand this. They are proof of ownership. So, the change of ownership is transferred manually.
Conclusion
Projects will create their own tokens and then attempt to merge that token into a coin. For example, the Pi token has launched its own mainnet. Mainnet is the term used to describe when a blockchain protocol is fully developed and deployed, meaning that cryptocurrency transactions are being broadcasted, verified, and recorded on a blockchain. Pi was a cryptocurrency token but shortly will become a cryptocurrency coin. There are differences between a coin and a token that are not gigantic but it’s important that users understand the nuances between the two. Please remember that cryptocurrency coins do not move as the account balance is the only thing that changes. It is very similar to bank transfers, where the real money is not moved as only the value is transferred.
