In the crypto world, you hear of the word “coin” and “token” being used interchangeably.
Both a “coin” and a “token” can represent a cryptocurrency.
A “token” can represent things other than cryptocurrency. More on this in a later lesson.
In the case where a token is used to represent a cryptocurrency, and comparing it with a coin:
1. A “coin” is a cryptocurrency built on top of its OWN blockchain.
— And so:
— Bitcoin is a coin.
— Ether is a coin.
— Dash is a coin.
All have their own blockchains that are operated by their own respective networks.
2. A “token” is a cryptocurrency that is NOT build on top of its own blockchain.
– And so:
— USDT is a token.
— UNI is a token.
— LINK is a token.
All of them do not have their own blockchain.
The advantages of a token that is a cryptocurrency that is not built on top of its own blockchain are as follows:
1. Faster deployment
- The token developer does not need to set up his own blockchain and then test it for vulnerabilities, robustness and scalability.
- A smart contract can be created to govern the use of the token on the blockchain it’s deployed on. This smart contract can be written in minutes.
2. Multiple blockchains
- A token can be deployed across multiple blockchains.
- For example, the USDT is on the Ethereum, TRON, Solana, Binance Smart Chain and EOS blockchains, among others.
- This gives more options for users, and as different blockchains have different speeds, fees and other features that some user prefer over others, it will increase the adoption of the token.
The advantages of a coin that is built on top of its own blockchain are as follows:
1. It is FULLY INTEGRATED with its own blockchain
- This can provide greater control and flexibility over the design and implementation of the network.
2. It is more flexible
- A coin’s blockchain can be customised and optimised to support a wide range of uses and applications.
- For example, the blockchain of the privacy-focused coin Monero (XMR) uses advanced cryptographic methods to obfuscate transaction info which makes it difficult for others to trace those transactions, and stealth addresses which are a one-time address that is generated for each transaction.
Moving forward, “coin” and “token” in respect of cryptocurrency will be used interchangeably as their differences are not critical except when pointed out.