When it comes to cryptocurrencies, the terms coins and tokens are often used interchangeably. This has led to some confusion about the differences between the two different digital assets. Let's run through them both and see the key differences between a coin and token for a clear understanding of the two.
Coins are cryptocurrencies that are built on their independent blockchain network. They are the asset that is native to a blockchain and its price is entirely determined by supply and demand. Some examples are Bitcoin, Ethereum, and Solana. They enable the transfer of value, some can be staked, and be used for gas fees.
Tokens are cryptocurrencies that are built on top of an existing blockchain network. These are created by users of the blockchain network, often for a Dapp (decentralized application) such as the many apps in the DeFi (decentralised finance) ecosystem. Tokens have many different use cases other than just a transfer of value, such as stablecoins. Stablecoins are also tokens, but they are made to be pegged to the value of a certain asset such as USD or gold. Many tokens offer very high APYs (Annual Percentage Yields or Interest per year) if users provide liquidity with their tokens offering a new way to make passive income.
The Key Differences:
Coins are built on their independent blockchains while tokens are built on existing blockchains
Coins are mostly used as a transfer of value as well as to run the blockchain while tokens are suitable for a large variety of needs
Coins are usually mined or earned as rewards for validating transactions while tokens are usually introduced through airdrops and ICOs
We hope this helps you understand more clearly the difference between a coin and a token. By understanding the two we hope it helps you manage your risk more effectively and become more interested in the world of cryptocurrencies! Join our Discord and Reddit to recommend what you want to see covered next in the steaking academy.