Coins and tokens are basic types of crypto assets that differ in functionality: coins enable transactions within their own blockchains, while tokens, operating on other people’s blockchains, can represent assets or rights. SwapGate offers an extensive range of these assets, making it easy to invest and use for a variety of purposes, opening up access to many unique opportunities.
We will attempt to dispel the confusion surrounding the terms “coins” and “tokens“. We will discuss what exactly distinguishes these two types of crypto assets from each other, how they work, and what unique features and uses they have.
What are cryptocurrency coins?
Cryptocurrency coins are native blockchain protocol assets that serve as the medium of exchange in all transactions or smart contracts executed within a given blockchain. Coins exist on the underlying layer of the respective blockchain, not on the decentralized application (dApp) created from it.
Many view these coins as “tier one” cryptocurrencies. While a wide variety of networks, applications, games, and other types of protocols can function on these blockchains, it is the first-level chains that serve as the foundation upon which other applications and associated crypto-tokens are built.
Typically, cryptocurrency coins carry the same or similar name as their respective blockchains. For example, the cryptocurrency Bitcoin exists on the Bitcoin blockchain and the cryptocurrency Ether exists on the Ethereum blockchain.
How do cryptocurrency coins work?
Blockchain users can use cryptocurrency coins in a variety of ways. Some use them as a medium of exchange for electronic transfers of value directly between participants. Others see them as a store of value, not subject to the same controls as government-issued currencies. Ultimately, cryptocurrency coins act similarly to traditional currencies and precious metals such as gold.
New coins enter circulation as rewards for validators through consensus mechanisms such as proof of work (PoW) and proof of stake (PoS). These processes require users of the network to either “work” to mine coins through the PoW mining process, or block coins through staking to earn rewards through the PoS process.
Examples of cryptocurrency coins
Among the leaders among cryptocurrency coins are:
- Bitcoin (BTC);
- Ethereum (ETH);
- Cardano (ADA);
- Solana (SOL);
- Polkadot (DOT);
- Ripple (XRP);
- Litecoin (LTC);
- Tron (TRX);
- Tezos (XTZ);
- EOS (EOS).
What are cryptocurrency tokens?
Cryptocurrency tokens are digital assets created and deployed on top of a first-level blockchain. In other words, they are digital assets that are native to products and services built on top of so-called first-level blockchains associated with cryptocurrency coins.
Ethereum is perhaps the most popular first-level blockchain used to create and run cryptocurrency tokens. However, there are a number of other first-level blockchains that serve as the basis for creating and deploying cryptocurrency tokens.
For example, there are many decentralized applications, games, and services in the Solana ecosystem. While each of these are in the Solana ecosystem, they all have their own unique cryptotokens that perform specific functions within that application.
Some examples of cryptotokens in the Solana ecosystem include:
- The Graph (GRT);
- Render Token (RNDR);
- Audius (AUDIO);
- STEPN (GMT);
- Serum (SRM);
- Raydium (RAY);
- Star Atlas (ATLAS).
Tokens tend to have a wider range of functions than cryptocurrency coins and contribute to the empowerment of decentralized services that support the blockchain ecosystem.
Many stablecoins, for example, are crypto tokens and are digital assets that developers peg at a 1:1 ratio to fiat currencies. Security tokens, utility tokens, management tokens, and non-fungible tokens (NFTs) are also examples of different types of crypto tokens.
How do crypto tokens work?
Developers create crypto-tokens based on other blockchains, using simplified development tools and adhering to certain token standards. Each first-level blockchain has its own unique token standards.
Token standards define the specific smart contract functions that a token must be able to perform. These standards ensure interoperability with the underlying blockchain and its ecosystem of dApps and services.
thereum developers were among the first to release their own token standard in 2015. The most common Ethereum token standard is ERC-20, where ERC stands for “Ethereum request for comment.”
ERC-20 defines smart contract specifications for creating and deploying interchangeable tokens on the Ethereum blockchain. This standard has quickly become the most popular way to easily create cryptocurrencies without having to start from scratch.
Risks and considerations
Investing in cryptocurrency coins and tokens carries certain risks that every investor should be familiar with. It is important to understand the potential problems associated with investing in crypto-token offerings, especially given the industry’s history of numerous scams and scams.
During the ICO boom in 2017, developers used the already existing Tier 1 blockchain infrastructure to quickly launch hundreds of unscrupulous projects. Their goal was to take advantage of the wave of speculative cryptocurrency investments, rather than creating truly innovative decentralized products and services. Often, these fraudulent projects consisted of nothing more than a landing page, vague terms of reference, and a fictitious team.
As always, investing early is risky, and you should understand the potential problems when investing in crypto-token offerings. Do thorough research on the project, its team, roadmap, and overall contribution to the cryptocurrency ecosystem before investing.
Conclusion
The differences between coins and tokens may seem minor, but they are fundamental to understanding the mechanisms and capabilities of crypto assets. In this guide, we have looked at the key differences between these two types of crypto assets, their functionality, uses, and potential risks.
Understanding these concepts is a key aspect of learning about the cryptocurrency industry. We hope this guide will help you better navigate the world of cryptocurrencies and make your experience more informed and safer. Continue learning about cryptocurrencies with the SwapGate blog or start using them now to deepen your knowledge and expand your investment portfolio.