Coins and Tokens Compared: Differences at a Glance

We basically divide cryptocurrencies into so-called tokens and coins. They can be transferred peer-to-peer, i.e. from person to person. No intermediary, such as a bank, is necessary. This property is also what connects coins and tokens.

Although the terms coin and token are often used synonymously, there are clear differences in functionality and structure. In this article, we will explain the properties that distinguish both types of cryptocurrencies from each other and the similarities they still have.

What are Coins?

Coins are digital currencies that function as means of exchange and stores of value on blockchain platforms. The cryptocurrencies each have their own blockchain. A specific feature of coins is therefore their independence from external platforms. They use their own blockchain to verify and process transactions.

The main function of coins is to facilitate peer-to-peer transactions, often without the need for a central authority. A vivid example of this is Bitcoin (BTC), the first and most well-known cryptocurrency. Coins can be used to purchase goods, services, or as an investment vehicle.

Altcoins such as DOGE, ETH or LTC are also coins. This is the native cryptocurrency of the respective blockchain.

What are Tokens?

Tokens are digital values that, in contrast to coins, are created on existing blockchain platforms. They therefore do not have their own blockchain and are therefore dependent. Among other things, they use the security and consensus mechanism of the underlying blockchain to confirm transactions.

Tokens can have various functions, including the representation of value or ownership, access to specific services, or participation in decentralized applications. Tokens are not necessarily considered independent currencies, but rather as a means of representing and controlling digital values and rights. Examples of tokens are Uniswap (UNI), Aave (AAVE) or Decentraland (LAND). The tokens often serve as a means of payment within a decentralized application (dApp)

Probably the best-known blockchain platform for creating tokens is Ethereum. This usually happens via a smart contract. This can be used to determine or adapt the rules and properties of the token. The ERC-20 and ERC-721 standards have become particularly established.

Ethereum Token ERC-20

ERC-20 tokens are a type of digital token that is based on the Ethereum blockchain. They were created according to the so-called ERC-20 standard. ERC stands for Ethereum Request for Comments. This defines a series of rules and functions that a token must fulfill in order to function smoothly within the Ethereum ecosystem.

You will find many ERC-20 tokens among the largest cryptocurrencies by market capitalization. The standard is popular because it enables interoperability between the various applications and platforms. In addition, the ERC-20 tokens use uniform methods for transfers, balance inquiries and other basic actions. This allows developers to work with them easily and integrate them into DApps (decentralized applications).

Examples of this are the stablecoin Tether (USDT) or Chainlink (LINK).

Ethereum Token ERC-721

ERC-721 tokens are a special type of Non Fungible Tokens (NFTs). They are created on the Ethereum blockchain according to the ERC-721 standard. In contrast to ERC-20 tokens, which are interchangeable, ERC-721 tokens are unique and represent individual digital values.

Each ERC-721 token has a unique identification number and properties that distinguish it from others, making them ideal for representing unique digital objects such as digital artwork, collectibles, virtual properties, and more.

The best-known projects based on the ERC-721 standard include the CryptoKitties. Whereby each of the virtual crypto cats is actually an ERC-721 token.

These tokens revolutionize the way digital possessions can be represented and transferred, as they make it possible to track the origin and the entire transaction history of an object on the blockchain. This creates trust and integrity in the field of digital assets. The ERC-721 tokens have therefore played a significant role in the development of NFT markets and the creation of new use cases for digital possessions by establishing a new paradigm for ownership and trade in the digital world.

Token Types at a Glance

Even if tokens could theoretically be differentiated from one another by a large number of different categories, some token types have become established into which we could classify almost every cryptocurrency.

Some common applications are:

• Security tokens are digital representations of a financial instrument on a blockchain, such as shares, bonds or investment fund units. Investors have the chance to participate in profits. Therefore, they are also subject to securities law.
• Utility tokens grant access rights to certain functions or services within a platform. In contrast to security tokens, there is no profit sharing or legal claims through the ownership of the tokens. This fulfills practical purposes within the respective ecosystem.
• Commodity tokens, just like security tokens, represent an already existing asset. While a security token can represent any type of asset, commodity tokens are limited to commodities. This includes values such as gold, oil or coffee.

Conclusion: What You should Know about Tokens and Coins

The main difference between coins and tokens is that coins are operated via their own independent blockchain and tokens are dependent on an existing blockchain.

Coins are an essential part of their blockchain and represent the cryptocurrency in digital form, so to speak. In contrast, tokens can represent a wide variety of values. Their properties are determined via so-called smart contracts.

In addition, a distinction is made between two standards for tokens, which have mainly become established. The ERC-20 and ERC-721 standard. The former being interchangeable tokens and the latter being Non Fungible Tokens (NFT), i.e. non-interchangeable tokens.

You can buy cryptocurrencies (coins and tokens) on crypto exchanges. It is important for you to choose a trustworthy crypto broker. Next, take a look at CoinPro’s crypto exchange comparison.