It is a question that came to my mind when I attended the first session on Blockchain & Cryptocurrency. I remember being surprised by the vagueness and uncertainty delivered along with the answer! Thereafter I have been throwing the “Coins versus Tokens” question at many people, and finally, I feel I should pause to answer it in totality.
A Crypto Coin is digital money that can be traded and accepted by people buying and selling goods or services, if the sellers choose to accept the Coin. Coins therefore, have the potential to replace conventional money.
A Token is a digital asset that may play a role within the bounds of the business operations and transactions, of the company that issues it. It gives the holder a right to participate in the activities of the network. A Security Token is like a company’s share, while a Utility Token has certain pre-defined use-case within the ecosystem of the business.
The most differentiating technical factor that defines a Coin from a Token is that a COIN runs on its own network, (its own Blockchain). It operates independently of any other platform. It can be mined… like Bitcoins!
But, a TOKEN runs on, and hence, depends upon, another network like Ethereum, NXT, Omni, etc.
Check various websites listing Coins and Tokens like http://www.coinmarketcap.com
Here you will see that Coins and Tokens are listed separately. While the Tokens list shows the “Platform” against each token, the Coins listing does not. That’s because, as described, every Token is built on another platform, like Augur, TRON, ICON, OmiseGo, are all built on Ethereum, Tether is built on Omni, and so on. Multiple Ethereum based Tokens can be held in the same Ethereum Wallet. In contrast the coins BTC, ETH, LTC, XRP have their own Blockchains… Bitcoin, Ethereum, LiteCoin, Ripple, respectively.
In the arguments between coins versus tokens, Tokens are easier to create than Coins. Platforms like Ethereum make it easy to create Tokens. But creating coins is much more difficult as it implies creating and maintaining a whole new platform.
When we hear about an ICO it’s in fact a Token offering, and that Token is being created and launched on a platform, such as Ethereum, or Stellar, and so on.
A Token, by definition, is a representation of any tradable entity such as coupons, loyalty points, reward points, gold bonds and more, usable in a pre-defined way, within the scope of the platform it is issued on. To compare with a more real-life example- You pay $1 at a pinball machine effectively exchanging it for 3 pinballs (or tokens) which can be used only to play the pinball game.
A Crypto Coin can be traded with other Coins or with conventional money and due to this, a Coin might be supported by any and many application/website, while a Token can only perform a certain pre-designed activity and be supported only on the decentralized platform it exists upon.
Hope this helps in clarifying the distinction between Crypto Coins and Tokens. Any questions are welcome. If you need any help in integrating Crypto Token based payments into online marketplaces, or creating new Coins through ICOs, simply fill in our Contact Form in the footer of this page and we will get back to you.