Amidst this cultural shift from traditional transactional methods towards more innovative and efficient ways, like cryptocurrency, this phenomenon also birthed new concepts and terms that are crucial. Coins in this context refer to the cryptocurrencies that operate on their own blockchains and are native assets—unlike tokens, which are built by platforms and apps on top of existing blockchains. The existence of these two things sparked a lot of discourse online. “Coins vs. tokens,” they say, comparing their features and evaluating which one is better.
The best way to describe these two in relation to each other is how coins are essentially the indicator of what one can buy. Meanwhile, tokens act as a representation of your ownership. Think of it like possessing a stock of gold. Even though the only thing you own is a stock, it is still a representation of what real gold is. Therefore, essentially, that is what a token does. With this in mind, let us figure out all the necessary things about coins and tokens so that you can directly jump into it.
Differences Between Coins vs Tokens
The first distinguishing feature was introduced in the previous segment. A coin would operate on its own blockchain, meaning that if it is paid with Ethereum, then it would go to the Ethereum blockchain, and the same thing would happen with other blockchains. Meanwhile, it’s a different case for tokens as they only operate on other cryptocurrencies’ blockchains, making them dependent on other coins. Moreover, coins are usually created through the process of mining or staking coins. On the other hand, tokens are birthed through the process of initial coin offerings, which is similar to how stocks and initial public offerings work.
Another difference between these two is the fact that when coins are handled by blockchains, tokens are handled by smart contracts and computer-programmed codes that act as a replacement for physical contracts and intermediaries. Furthermore, tokens like NFTs move places when they are purchased and are unique in value, but this doesn’t happen with coins as they only fluctuate in the amount.
Even within tokens themselves, there are different categorizations everyone should know, including utility tokens, governance tokens, platform tokens, security tokens, transactional tokens, and many more. These variations show how inside the conversation of differences, there are many more things to know about.
It is also important to note that when a project gets big enough, creators may migrate from tokens to coins, expanding their opportunities and welcoming more risks as well.
Token vs Coin, Mechanisms and Differences
Advantages of Coins
Coins have a lot of advantages considering they are by nature more valuable than tokens as they are merely a representation. One of the best things about this is how its decentralized structure allows easier systems and transactions to occur, one that does not require intermediaries and middlemen and is very fast-paced. This also allows intermediary fees to be cut, which is very different from the very costly ways of the traditional markets.
The systems of these coins also allow transactions to be secured because an individual’s identity is protected as well as the system prevents scammers from reversing transactions. Besides that, coins have a clear store of value as they can be exchanged for real products and services, as well as how they have a range of functions because they can be used for almost everything. Other than that, they can also be utilized for fiat currency.
This medium of money-making ensures that it can increase or decrease in value so that people can make good investments and eventually profit from as many parties as possible. Having its own blockchain is a huge advantage as the coin gains a lot of independence and flexibility to make decisions based on the creator’s needs.
Disadvantages of Coins
One of the main disadvantages of crypto coins is that they are hard to create as they have to be built from scratch using a new blockchain. This process of setting up requires and takes a lot of time and energy. A lot of the time, since they have multiple functionalities, the smart contracts for each function may not be as developed as the tokens’. Therefore, this would make investors a little hesitant as it is not exactly the safest option as it is prone to mistakes. Besides that, coins may also be prone to 51% of attacks. This is due to the fact that the blockchains and networks are just starting out and that they would be more prone to malfunctioning programs.
Advantages of Tokens
The best thing about tokens is the fact that they have some specific functionalities and are very specialized in them. For example, they are very suitable if used for DeFi functions. This would be very advantageous from an investment point of view because these tokens are created down from the root in their smart contracts to follow specific tasks for a certain program. Therefore, it is impossible for these tokens to perform something out of their commands, making this choice a safe option for investors. Not to mention, if their smart contracts are also executed and created perfectly, they may have the potential to attract more investors.
Disadvantages of Tokens
The thing about tokens is that they are inherently less valuable than crypto coins as they hold no store of value when it comes to payment. They can also only be used in online forums like video games. Therefore, its activity and the ways in which it can be used are restricted and limited. Being made on top of an existing blockchain is also hard, considering the token would have little to no freedom, independence, or flexibility to perform its own tasks and make decisions based on the developer’s wants. With this in mind, the token has to follow the main blockchain and its commands.
In the end, whichever is the choice of users in regards to this coins vs. tokens discourse is subjective. However, the best choice that would benefit everyone economically is obviously crypto coins. This is, again, due to the fact that they have a better store of value than tokens and that they can easily be exchanged for actual real products and services.