Coins vs Tokens

I’m commuting from my home to office and have 20 mins of commute time which I thought can make it productive by writing another post.

Coins vs Tokens: these are the buzz words in the crypto arena nowadays and it is very important for a beginner to understand what they are and what are the differences between the two.

A coin is native to the blockchain. Meaning, they are like gas to your car. Example, bitcoin and ether. These are crypto coins. You can buy them with your Fiat currencies but value of these coins is derived from external factors like supply demand, popularity of the blockchain etc.

A Token is something which is built on top of a blockchain, example Augur, Omisego, Golem and Chainlink to name a few. These tokens are built of ethereum blockchain and are called ERC-20 tokens. These tokens are fungible. There are non fungible tokens on ethereum blockchain as well such as cryptokitties. As the name suggest, cryptokitties are not fungible and hence are very unique. There are other blockchains as well which support creations of Tokens.

Let’s continue with the differences, a token uses a smart contract to function and usually works as an incentive mechanism for the use case developed on a blockchain. These applications which are called dAPPS, use tokens as a means of payment for the use of service. Please note that not all dAPPS use tokens but still prefer payments to be done via current means.

You can create multiple tokens on a blockchain but the native coin remains the same. Hope this helps you clear your doubt if you’re still confused at this stage.

The biggest game changer for crypto currencies were the invemention of ICO or called Initial Coin Offering. Please don’t confuse with the name “Coin” used in this context. They mean tokens.

People with great ideas or let’s say ideas, start a company, just need to write a white paper on what is their project is going to accomplish, create a fancy website, name your Token and have few people on the team and that’s it, you can start raising money and fund your project. People who would see a future in your work, will buy your tokens as an investment hoping that the token price would go up in the long run. So, tokens are also ways of raising capital for your company. These tokens can be bought by native coins like ether or bitcoins just to name a few.

I hope you have a clear understanding of coins and tokens now. Please feel free to comment if you have any doubts.

Here’s a thought and would like you to answer.

Can a token be converted for Fiat currency? Or you need to convert tokens for native coins and then convert them for Fiat cash?