2 years ago

What are Tokens?

There are coins and there are tokens and, in some cases, both terms seem to mean the same thing. In this article we are going to provide some definitions.

What is a Coin?

The term “coin” or “altcoin” derives from the very first cryptocurrency, which is Bitcoin. While the term altcoin points to the fact that the cryptocurrency in question is trying to be an alternative version to Bitcoin, the term coin simply includes all crypto.

But what is needed to qualify as a coin? There are just two things that all coins have in common:

  • The crypto runs on its own blockchain
  • It runs independently

As soon as both criteria are fulfilled, we are speaking of a coin.

What is a Token?

A token is the opposite of a coin, meaning that it is dependent on an already existing blockchain and it cannot run independently. Tokens are often used as an asset or as a utility token in a smart contract economy. But there are more use cases:

  • A token can be a currency
  • It can represent shares in a company
  • A governance token enables the owner to vote

It is also worth mentioning that a token can hold any of these qualities at the same time. So, a token that represents a share in a company might also be a functioning governance token, enabling the shareholder to exercise his right to vote.

Why are both terms used for the same thing?

Since a token can be designed as currency it can then be used for payments. This is the exact same use case for coins, since they are designed as crypto. The difference is not only the technical aspect but also the fact that coins are meant to serve this one purpose. To be a unit of account and a store of value that can be transacted.

Tokens on the other hand can fulfil the same role, but as we have shown above have more and broader use cases. So, is it okay to use the terms synonymously, since they both can serve the same purpose?

No, a token does not have its own blockchain and it is dependent. It is not a coin.

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