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Crypto Technology

Difference between coin & tokens – cryptocurrencies

I know that they are often used with no regards to the meaning in the crypto sphere. Heck I am guilty of that too. Nobody really cares too much about the terms as long as everyone understands what they meant right? I have even seen major crypto sites doing that as well. But actually there is a difference between what is a coin and what is a token when we are talking about cryptocurrencies.

The most important is to understand when talking about this is what platform the coin or token is running on. Does it have its own blockchain? If it does, then it should be termed as a “coin”. Examples of coins are Bitcoin, Litecoin or Ethereum. They have their own blockchain – the Bitcoin network, the Litecoin network and the Ethereum network. So the rest running on another blockchain are called “tokens”. For example Hi Dollars token is currently running on the Ethereum network. These are ERC20 tokens. They make use of someone else’s blockchain and pay a fee to transact on that blockchain. The main advantage would be there is no need to maintain and to upgrade the blockchain. It would be left to the developers of the blockchain. In the example of Hi Dollars, that would be Ethereum and they are the ones who are responsible for the blockchain. This can simplify the work for the Hi Dollars team and they can concentrate on the project itself without spending resources and time to create another blockchain network. Another example would the Uniswap token and it is a ERC-20 token as well. Of course there are now numerous other layer 1 blockchains available like EOS, Cardano, Binance Smart Chain and Elrond among others. To make it simple, these should be termed “coins” while other representations running on these blockchains are “tokens”.

With that said, there are actually quite a number of different types of tokens themselves. Some tokens are meant for gas fees (transaction fees and this is the most common), some are meant for utility, some are meant for governance and of course there are non-fungible tokens (NFTs). For those who don’t know what are non-fungible tokens, where have you been living!? It is probably one of the hottest items in town these days. Everybody is talking about it. Oh and there is also such a thing as a security token – these are tokens what represent something of value in the “real world”. Perhaps some token that represent stocks in an exchange – it “bridges” the traditional finance to the crypto world. Hence it is view as an “security asset”.

Well I hope this clears up some confusion. Yes honestly I don’t think these terms are really that important to the retail investor but it is good to know. Take care all!

By Admin

Someone who is very keen on small scale investments like crypto, mining and other investments. For the common folk!

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