Coins vs Tokens, what’s the difference? Are they even different? On the surface, they may seem similar especially since the terms are commonly used interchangeably. But that’s not the case due to the fundamental differences that distinguish them.
First off, while all coins may be considered tokens, not all tokens are considered coins. That said, Coins have their own blockchains whereas tokens are built on an existing blockchain.
Coins and Tokens explained
Think of any blockchain, let us say Ethereum, its native asset is Ether right? Or Algorand on the Algorand blockchain, ADA on Cardano, These are all coins.
On the other hand, tokens would exist on pre-existing blockchains. Let’s take Ethereum and Uniswap as examples. Uniswap’s native digital asset is known as UNI. Since UNI is built on a pre-existing blockchain, Ethereum, it qualifies as a token.
From this, it’s clear that creating a coin is more difficult than creating a token. You may find a blockchain having only one coin but hundreds or thousands of tokens built on top of it
Use cases
The difference does not lie in their fundamentals alone but in use cases too. Some coins such as Bitcoin are mainly perceived as a store of value by offering an alternative to traditional banking.
Other coins focus on digital transactions, these coins are typically designed to be faster and cheaper. Some coins are designed to solve specific problems, like XRP by Ripple which is used to address cross-border payment problems. They aim to make processing real-time international transactions easier by leveraging the power of the blockchain.
Tokens on the other hand are popular in decentralized apps. They represent something specific in these dapps. This could be economic value, a stake, or even voting rights thereby facilitating and encouraging interactions with the protocols.
They are typically tied to many functions within their native ecosystem. For instance, SUSHI, Sushiswap’s native token is used for staking, governance, and even to reward users who deposit assets into liquidity pools.
Another cool thing about tokens lies in their power of representing assets through a process known as tokenization.
Asset tokenization is not limited to just digital assets, it has also been used to represent physical assets such as real estate on the blockchain. As you can see, token use cases are much more flexible and their possibilities may be endless.
In conclusion, while coins and tokens share similarities, their disparities in infrastructure, creation complexity, and utility highlight their unique roles within the blockchain ecosystem.
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