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Although we use the term crypto to refer to a wide range of currencies, there is a distinction to be made between coins and tokens. Let's take a closer look. Getting into the cryptocurrency market can be a difficult and intimidating task. You've probably heard of Bitcoin, but what about the thousands of other coins and blockchain projects? To gain a better understanding of the crypto markets, it's easiest to divide them into two categories: coins and tokens.

COINS:

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Any cryptocurrency with its own, independent blockchain, such as Bitcoin, is referred to as a coin. These cryptocurrencies are built from the ground up, and the broader network is built with a specific goal in mind. Bitcoin, for example, is a censorship-resistant store of value and medium of exchange with a stable monetary policy. BTC (i.e., bitcoins), Bitcoin's native token, is the most liquid cryptocurrency on the market, with the highest market cap and realized market cap in the cryptocurrency sector.

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Coin projects usually take ideas from previous technologies or other cryptocurrencies and combine them into a unique network that serves a specific purpose.

Ethereum's Ether (ETH) is the native coin of a smart contracts platform for creating general-purpose computer programs that run on a decentralized blockchain, and is another example of a coin. Ethereum focuses on arbitrary program data, which can range from games to social media, rather than financial data. Ether is used to send and receive money, manage assets, pay gas fees, and interact with the network's decentralized applications (dApps).

You may have also heard of Altcoins. Basically, any coin that isn't Bitcoin is referred to as an Altcoin.

TOKENS:

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Tokens are a special type of smart contract that allows users to create, issue, and manage tokens that are derivatives of the primary blockchain on platforms like Ethereum.

For example, Ethereum's ERC-20 token standard, which is essentially a protocol for creating tokens (other than ETH) on the Ethereum blockchain that can be exchanged with each other, fueled the ICO craze of 2017. Projects would announce or develop an Ethereum application using smart contracts, then issue a native token for use in that application, raising funds directly from Ethereum investors.

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Tokens occupy a distinct niche in the cryptocurrency market, serving as "utility" tokens within an application's ecosystem for incentivizing or paying fees. The popular ERC-20 token Dai is used by the MakerDAO dapp on Ethereum. MakerDAO is a stable Dai-based platform that allows users to access credit instruments such as lending and borrowing. Dai and other ERC-20 tokens, including the ETH coin, can be exchanged for any other ERC-20 token or Ethereum-based standard (for example, ERC-721).

As a result, tokens such as Dai exist as application-specific tokens within the larger cryptocurrency or blockchain network of a coin.

Maker (MKR), 0x, Augur (REP), Komodo (KMD), and Golem are some of the other tokens available (GNT).

Because coins are built on different, non-standardized code protocols, they must be exchanged through cryptocurrency exchanges. On the other hand, because Ethereum tokens (e.g., ERC-20) are based on standardized code protocols, they can be exchanged between internal applications with minimal friction.

Approaching cryptocurrency markets can be difficult, but knowing the fundamental differences between the various types of cryptocurrencies can help you manage risk and make better decisions in a volatile environment.

Cc,
@kouba01
@irawandedy