The difference between cryptocurrency and token: basics of the crypto industry

26 Aug 20:51

3 min. read

Main Differences Between a Coin and a Token

The main difference between cryptocurrency and a token lies in their technological foundation. Simply put, a crypto coin is an operating system, while a token is an application that runs on it. Let's delve deeper:

Cryptocurrency coins or coins. These are digital assets that have their own independent blockchain. Examples of coins include Bitcoin and Ethereum. The primary purpose of coins is to serve as a means of payment within their network and to support its security. A fee in the native coin of this blockchain must be paid for each transaction in the network: for example, the coin ETH is used within the Ethereum network.
Tokens. These are assets created on an existing blockchain platform. Comparing a crypto token to a coin, the former does not have its own blockchain but uses the infrastructure of the parent network. For example, most tokens are created on the Ethereum blockchain according to the ERC-20 standard. Tokens can serve various functions: providing voting rights, access to services, representing a real asset in digital form.

Practical Significance of Cryptocurrency Coins and Tokens

Traders and investors need to understand the difference between cryptocurrencies and tokens. This way, you will know exactly what you are buying and how it can be used. Below are a few key points that illustrate the practical difference between tokens and coins:

Functionality. Coins are primarily used to pay transaction fees within their network. Tokens are developed with a specific purpose within a particular project. For example, WhiteBIT token is used on the Ukrainian cryptocurrency exchange WhiteBIT to reduce trading fees, gain access to new products, participate in giveaways, etc.
Creation method. Developing a new blockchain and launching a coin is a complex and costly process that requires a large team and significant resources. It is simpler and cheaper to create a token on an existing network.
Value. This parameter for a coin depends on its blockchain — the level of security, speed, scalability. The value of a token is tied to the success of the project that issued it and the demand for its services.

When choosing between a cryptocurrency coin or a token, you should understand that both types of assets are important in the ecosystem. They simply serve different purposes. Coins are the foundation on which the crypto industry is built, while tokens are its multifunctional and flexible tools.