In the fascinating realm of blockchain technology, two terms frequently make an appearance: coins and tokens. And, most people are confused as the terms seem very similar. But, there is a lot of difference to talk about.
To Explain Let’s begin with an example:
Let’s say you have two situations, where you can buy your car which will provide you many benefits like ownership, no insecurity and many more. But, also you have the possibility of renting a car which has its benefits like less maintenance cost and many more. Very, similar is with Coins and Tokens.
The coin is Buying the Car, and the Token is renting the Car.
Key Difference Between Coin and Token:
Coins: Also, known as cryptocurrencies, are native currencies that operate on their independent blockchain networks. They are the backbone of the blockchain for handling transactions and actions. Coins are designed primarily as mediums of exchange, aiming to establish a decentralized and secure digital form of money. They often possess unique features like scarcity, divisibility, and fungibility, making them valuable as store-of-value assets.
Examples are Ethereum & Bitcoin.
Tokens: Tokens, on the other hand, rely on existing blockchain platforms, such as Ethereum or Binance Smart Chain. There are a variety of tokens like digital assets, including utility tokens, security tokens, and non-fungible tokens (NFTs). They leverage the infrastructure provided by their underlying blockchain network to enable a wide array of functionalities, such as access to services, participation in decentralized applications (DApps), and representation of ownership rights.
Ethereum and ERC20 Token
Ethereum is an independent coin based on its blockchain which is very efficient and famous as it can validate and store its transactions on the platform. On the other hand, ERC20 Tokens are tokens that use Ethereum blockchain as their backbone. They don’t have their blockchain and rely on the Ethereum blockchain. One of the very famous examples is BAT(Basic Attention Token) used by Brave Browser. Tokens have the potential to migrate from token to coin in future if needed.
Types of Tokens
Platform Tokens: Platform tokens power decentralized ecosystems, granting users access, incentives, and governance rights. They align interests, foster community engagement, and drive platform growth. In essence, they are the lifeblood of blockchain platforms. Uniswap is a type of platform token.
Security Tokens: They represent ownership in real-world assets such as real estate, company shares, or commodities. By tokenizing these assets, previously illiquid investments become more accessible and tradable. Security tokens bring greater transparency, fractional ownership, and increased liquidity to traditional financial markets, offering a compelling alternative for investors and market participants. Polymath is a type of Security token backed by a diverse group of reputable investors and strategic partners.
Transactional Tokens: Transaction tokens are digital assets used for conducting transactions within a specific blockchain network. They enable efficient and secure peer-to-peer transfers of value, serving as a medium of exchange within decentralized ecosystems. Their transaction fees usually are very low. xDAI is a transactional Token pegged to USD.
Non-Fungible Tokens (NFTs): Unlocking Digital Creativity:
The rise of non-fungible tokens (NFTs) has captivated the world, igniting a digital revolution for artists, creators, and collectors. NFTs represent unique digital assets, such as art, music, virtual real estate, or virtual goods in gaming environments. Each NFT possesses distinct attributes and ownership, immutably recorded on the blockchain. With NFTs, artists can monetize their work directly, while collectors can enjoy provable ownership and rarity in the digital realm. NFTs have given birth to a new era of digital creativity, revolutionizing the art and entertainment industries. Will also discuss NFT in some other blogs more deeply.
Utility Tokens: Powering Decentralized Ecosystems:
One captivating facet of tokens is the versatility they offer through utility tokens. Utility tokens serve as the fuel for decentralized ecosystems, granting holders access to specific services, products, or functionalities. Consider platforms like Binance (BNB) or Uniswap (UNI) or Aptos(APT), which employ utility tokens to facilitate transactions, enable governance voting, and unlock additional features within their ecosystems. These tokens empower users to actively participate and shape the evolution of the platforms they engage with.
There are many different types of tokens but, cannot discuss all of them here. These tokens also, play a big role in empowering blockchain and coins. There is a need for both and surely in future, we will see many new projects that will make them more better and amazing. As the blockchain landscape evolves, the synergy between coins and tokens continues to shape the future of decentralized finance, offering endless possibilities for innovation and beauty in the world of digital assets.
Just one thing definite is,
We all are heading towards a better future.