What Are the Differences Between a Crypto Coin and a Crypto token?

Almost all cryptocurrency users have used and still use crypto coins and crypto tokens interchangeably over their cryptocurrency adventures. It is not a sin, though, because both concepts are extremely similar, just with slight discrepancies.

It’s important to remember that coins and tokens are two categories of digital assets. However, the majority of cryptocurrency users usually own both coins and tokens in their portfolios, but many are unaware of the differences between the two kinds of assets and what they both are meant to be used for.

As a result, some industry experts have stated that “all coins are tokens but not all tokens are coins.” To put things in perspective, despite using the same “blockchain technology” and functioning similarly, you CAN refer to a coin as a token, but you CAN NOT call a token a coin.

Just to prepare your mind before moving on, the major distinction between the two classes of assets is that crypto coins are the native asset of a blockchain network just like Ethereum and Binance Smart chain (BSC), while crypto tokens are usually issued from decentralized applications that are developed on top of an existing blockchain network.

To put it another way, cryptocurrencies are analogous to a house built on its own land (blockchain), whereas tokens are comparable to a house built on someone else’s land.

It doesn’t end there, as there are still a lot of things to know about the two related concepts, which we will discuss below. Therefore, this article will go through the meaning of crypto coins and crypto tokens, the features that differentiate the two, some examples of each, and notably, how “tokens” can become a “coin.” Now, let’s dive in!

What are Crypto Coins?

Coins are a form of cryptocurrency that operates on its native blockchain network, meant to be used as a store of value or means of exchange. Coins possess the fundamental features of fiat currencies, but, as expected, never exist in any physical form in that they are built on a decentralized ledger technology.

Good examples of coins are Bitcoin, Ethereum, Litecoin, and Ripple (XRP). Could you notice something similar among these coins mentioned? If not…then, they simply have their native blockchain networks called by their names, respectively. Cryptocurrency coins are often built from the ground up–right from the creation of the blockchain ledger, to the building of several applications, to the issuance of the coin itself, and so on.

Additionally, each crypto coin is created to achieve a particular goal or be used for a particular thing. For instance, the major purpose of Ripple (XRP) is to serve as a currency used for cross-border payments, while ensuring low transaction costs. Apart from real-world utilities, coins are also used for paying transaction and gas fees across their ecosystems, just as the BNB coin is used for processing transactions on all BSC-based applications, including MelegaSwap.

What Are Crypto Tokens?

Crypto tokens are digital assets that are built on an existing or a third-party blockchain network, by using smart contracts (or other protocols put in place) to carry out a range of functions. Tokens are not necessarily meant to be cryptocurrencies, they can also refer to other virtual assets like non-fungible tokens (NFTs), tradable carbon tokens, or any other real-life objects that are tokenized on a blockchain.

On centralized and decentralized exchanges, tokens are always offered alongside currencies, but they lack most of the functionalities that coins have. They are not used as an exchange or for gas fees, for instance.

Unlike crypto coins, tokens are not mined, they are often distributed automatically by the developers, using pre-defined rules secured with “smart contracts.” Each blockchain network uses different protocols for its contract and transaction purposes. For instance, the Binance Smart chain (BSC) uses BEP-20 as a symbol for crypto tokens that leverage its smart contracts.

A few examples of tokens include:

$MARCO — Melega’s flagship token built on Binance smart chain (BSC)

$MANA — The token that powers the Decentraland NFT marketplace. Ethereum blockchain underpins it.

$POLYDOGE — A dog-themed meme token created on Polygon (MATIC).

Major Differences Between Crypto Coins And Tokens

The following are some of the major factors that differentiate a token and a coin;

Native Blockchain

Just as explained above, a cryptocurrency coin has its blockchain network that accommodates other projects, software, or decentralized applications. Whereas, a token does not have a native blockchain, but leverages an existing one to create its ideas.

Issuance Method

Coins are generally issued into circulation by different methods, such as mining and staking–depending on the underlying protocols. For instance, the most popular protocol that is used in crypto mining is the proof-of-work (PoW) consensus mechanism, which brings new coins into circulation and also ensures the security of the network at the same time. Bitcoin is the first coin to use this algorithm. Some other popular coins, like Ethereum and Binance, use a different approach based on a protocol that relates to staking.

On the other hand, tokens are automatically distributed by the developers behind their creation, using pre-defined self-executing rules of an underlying blockchain network — usually called “smart contracts.” The developers would have programmed the smart contracts based on how they want the tokens to be distributed.

Gas or Transaction Fees

These are the fees that you pay when you facilitate any crypto-related transactions, usually paid to network validators as rewards for keeping the network running. Therefore, one can only use crypto coins to pay fees for every transaction–including token transfers… so far they are all based and occur on the same blockchain network.

Is It Possible For A Token To Become A Coin?

The short answer is YES. A token can become a coin if it develops its purpose-built blockchain network and migrates its token thereto. The best example is Binance’s BNB coin which was initially issued on the Ethereum blockchain in 2017, but it migrated to Binance’s native blockchain (BNB chain) in 2019, then created a smart contract-supportive Smart Chain (BSC) afterward.

Closing Thoughts

The popularity of cryptocurrency tokens and coins is rising as a result of the significant roles that they both play in the industry. As a result, just because a token doesn’t have its own blockchain doesn’t imply it can’t outperform others. In reality, numerous crypto tokens have seen an exceptional performance, outdoing some coins.

Therefore, we hope that this post’s content has helped you fully understand the idea and that you are no longer confusing coins for tokens or vice versa