You’ve heard about cryptocoins, right? You may have also heard about tokens? The two terms are often used interchangeably but that doesn’t mean they refer to the same thing. So no, in the world of cryptocurrencies, coin and token are not synonyms but they could be referring to the same thing. Sounds confusing? Don’t worry, we’re here to help you out. Let’s start with…
Coins are cryptocurrencies that have their own, main blockchain. These would include the likes of Bitcoin, Litecoin, Ethereum, Ripple, Monero, as well as a number of Bitcoin variants. The most popular coins — including Bitcoin, Litecoin, Ethereum, Ripple and Bitcoin Cash — can be directly exchanged for fiat currencies like U.S. dollars and Euros.
Also, coins are envisioned to be used as real money, and many of them are accepted at thousands of merchants around the globe. They feature the following properties:
- Fungible: One unit is equivalent to another
- Divisible: Can be divided into smaller units of value
- Acceptable: Widely accepted as medium of exchange (this isn’t true for some newer cryptocurrencies)
- Uniform: All versions of the same denomination have the same value
- Portable: Can be carried along and exchanged (though some coins are easier to exchange than others)
- Durable: Can be used a number of times without degrading
When we talk about cryptocurrencies, we usually think about coins. They are the “parent” category for tokens. Which we’re discussing next…
Tokens are also a form of cryptocurrency that exists inside a child or side chain, which is tied to the main chain. In most cases, that main chain is Ethereum’s blockchain which has been used by most (if not all) projects we’ve been talking about in the past few months.
Usually, such tokens — created in a child or side-chain of Ethereum’s main chain — can be initially exchanged only for ether from where users can further exchange them for fiat currencies. Once they get listed on some exchange, they could then be exchanged for other (crypto)currencies, as well.
There are many tokens out there, with pretty much every new blockchain-based project creating its own cryptocurrency. If that project is relying on Ethereum, we are talking about tokens rather than coins.
It is probably easiest to imagine tokens as chips that can used inside one particular platform, and in order to exchange these chips for real money, users first have to convert them to the cryptocurrency of the main blockchain. Again, in most cases that’s Ethereum.
We thought it is important for our users to understand the difference between tokens and coins, no matter how subtle it is. With ICOs popping up all around the place, you may want to dig into details of this bright new universe; and knowing this difference could help along the way.