- any coin apart from Bitcoin are called altcoins or alternative coins
- cryptocurrency coin is a digital form of money
- bitcoin was created to solve the problem of inflation in the world
Coin and Token are two very important words and components of the Cryptocurrency and Blockchain ecosystem. The words “Coin” and “Token” have been used a couple of times wrongly with each time thinking a Coin is a Token and vice versa. But in this article we will take a look at the following:
What is a Blockchain?
what is a Coin?
What is a Token?
How do you use a coin?
Examples of crypto coins
What are the types of tokens?
Examples of tokens
What is a Blockchain
In the simplest terms, Blockchain can be described as a data structure that holds transactional records and while ensuring security, transparency, and decentralization. You can also think of it as a chain or records stored in the forms of blocks which are controlled by no single authority. A blockchain is a distributed ledger that is completely open to any and everyone on the network. Once an information is stored on a blockchain, it is extremely difficult to change or alter it.
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What is a Coin in Cryptocurrency?
Now that we have the knowledge of what a blockchain is. A crypto coin is a type of cryptocurrency that has its own blockchain.
How do you use a Coin?
A Cryptocurrency Coin is simply a digital form of money. They possess the same functionality paper money or real-life coins have in our World today. Some cryptocurrency enthusiast believe digital coins will phase out FIAT soon. Let’s take a look at some uses of Cryptocurrency Coin:
- Crypto Coin can be used as a store of value: same way you save money in your bank account you can save cryptocurrency coins like bitcoin and ethereum in your wallets.
- To send and receive money: you can use crypto coins to send and receive monetary value.
- To pay for goods and services
However, some digital coins (such as Ether, NEO, and DASH) have more features than just being useful as a form of money.
Ether (ETH) is used to fuel transactions on the Ethereum network. Tokens can be built on Ethereum, but Ether is still required to send a token. It funds the mining costs (it pays the computers that verify transactions on the Ethereum network).
NEO (NEO) is staked in a wallet to earn a dividend. This dividend is known as GAS. Tokens can be built on NEO, just like they can on Ethereum. When sending a token on the NEO network, you need to pay GAS as a transaction fee, the same way that Ether is used to pay Ethereum fees.
Dash (DASH) allows users to vote on important decisions for the Dash network. If there is an idea suggested to upgrade the DASH network, those holding enough Dash can vote to decide whether the upgrade should happen. These voting rights allow the holders of DASH to have a say in how the project evolves.
Examples of Cryptocurrency Coins
The most popular and known Cryptocurrency Coin is Bitcoin. Anywhere Cryptocurrency and Blockchain is mentioned today the first thing that comes to your mind is Bitcoin. We also have other Coins like Ethereum, Litecoin, Tron, EOS, Monero, Dash, Ripple, etc.
What is a Token?
A Token is a type of cryptocurrency that is created on an already existing Blockchain. In simple terms a token is created on a coin blockchain. The most popular type of tokens are the ERC(20 and 771) tokens. ERC tokens are tokens created on the Ethereum Blockchain.
A majority of cryptocurrencies we call coins are actually tokens. This is a common mistake we all are guilty of. Ethereum is the most commonly used blockchain, but we also have other blockchains like Neo, Binance Chain, Stratis, Waves, Lisk, etc.
What do you use a Token for?
The uses of a particular token is solely dependent on the token type. We have three main types of tokens. Let’s take a look at them.
Types of Cryptocurrency Tokens?
1. Utility Token
this is a type of token that is used to access either the service or product of a particular cryptocurrency project. Example of utility tokens include Huobi Token, BitMax Token
2. Security Token
A security token is a type of cryptocurrency that qualifies the investor or holder of the token to earn profits, dividends or own a share in the cryptocurrency firm/project as a form of security for investing. The person buying a security token is investing his or her money in the token with the expectation of profits. Under Swiss law, these are treated in the same way as traditional securities. Few Cryptocurrency Projects have attempted Security Token Offering because there isn’t much regulatory guidance about what is legal and what is not in regards security tokens
3. Payment Token
These are tokens that primarily serves the purpose of payments for goods and services. Stable coins are a good example of payment tokens.
In a nutshell cryptocurrency tokens can be used primarily to gain exclusive access to products and services offered by a cryptocurrency project or to access the features in the cryptocurrency project’s ecosystem. This may be in form of payments for fees, being able to invest, earning dividends, being able to vote and partake in the decision making process within the token ecosystem, etc.
Examples of Tokens
USD Tether, Chainlink, Huobi Token, Eterbase Coin, Maker, Binance USD, etc
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In this article we were able to give introductory information on definition, uses, types and features of cryptocurrency coins and tokens as part of our Crypto Academy Educational Series.
If you have any questions or contributions please comment below, thanks.