You often hear people refer to to cryptocurrencies as both a token and a coin. For the most part, the terms seem interchangeable and almost everyone freely uses token or coin, depending on their preferences of words. But the truth is, when it comes to cryptocurrency, there is some differences between the two. For the sake of knowing the basic differences, we’ll keep this simple!
We use the word “coin” most frequently when discussing cryptocurrencies. Bitcoin gave birth to this and for awhile, as the only cryptocurrency that existed, there was no need for anyone to use token when discussing digital currencies. Token is most notable mentioned when discussing Ethereum. Ethereum was created as both a currency and a decentralized platform for smart contracts. This is important to know when trying to understand the difference between coins and tokens. We’ll use the chart below as an example.
So we will start with Blockchain. Cryptocurrencies are built on a blockchain foundation. Bitcoin, Ethereum and Litecoin, for examples, are protocols built on block chains. They are independently operational and do not require the functions of any other platforms. These three would all be referred to as “Coins.” All three can be used as a form of currency and are built on their own block chain and run their own type of protocol(The rules by which the coin works.) Bitcoin and Litecoin are coins both strictly used as currency while Ethereum can be used as both a currency and a platform to host other cryptocurrencies that would be referred to as tokens.
In the chart, we see $POE, $TRX and $FUN, all created off of Ethereums platform and thus we would call these “Tokens.” Tokens exist off of a coin that has it’s own independent platform. For these three, they would be referred to as ERC-20 tokens, as they are built on Ethereums platform. Once a token creates it’s own protocol on it’s own block chain(usually happens in what we call a mainnet) it then is no longer a smart contract on it’s parents platform and would no longer be a token. For example, Tron is an ERC-20 token on Ethereums platform. When they launch their mainnet and become a Tron-20 standard, it will then become a coin and no longer an ERC-20 token.
Almost everyone will refer to tokens as coins. For the sake of discussion in cryptocurrency, it’s just easier that way. Even though I know Tron is an ERC-20 token, I consistently refer to it as a coin. But it is important to know the differences. Calling a particular crypto a coin for conversation is one thing, but knowing why it is or is not a true “coin” is another. Tokens and coins play their own valuable role in the cryptocurrency system and knowing the difference can help in real world knowledge and growth of cryptocurrency along with making smarter investment decisions.