Understanding the Difference Amongst Cryptocurrency Tokens and Coins
Many people have been motivated to create fantastic things for the benefit of society by the digital age. One of them is a cryptocurrency token, a type of virtual money used to buy and sell goods and services.
Additionally, this development runs and keeps track of all user transactions on the blockchain, a public ledger.
The fact that Bitcoin was the first cryptocurrency to exist is well-known. Following its introduction, additional virtual currencies like Ethereum, Litecoin, and others entered the cryptocurrency market.
However, many people are unaware that cryptocurrencies can be classified as either tokens or coins. Despite their striking similarities, they perform in different ways.
According to the crypto business, the key distinction between coins and tokens is that crypto coins are the native asset of a Blockchain, such as Bitcoin or Ethereum, whereas crypto tokens are created by platforms and apps that are built on top of an existing Blockchain.
Before reading any further, be aware of the distinction between a cryptocurrency token and a coin.
What distinguishes a cryptocurrency token from a coin?
It’s a common misconception that because both have value, a crypto token and a coin are the same things. As a result, people would presume that all cryptocurrency coins are tokens, but this is not how it actually works. This is due to the distinction between a coin and a token. Their uses and operation are what make these both different.
What is a crypto coin as opposed to a crypto token?
The parameters and definition of a crypto coin were established by the birth of Bitcoin in 2010. These can be broken down into the following three categories:
cryptocurrencies run on a blockchain.
Public decentralized ledgers shared among a network of computers are known as blockchains. Since all users have access to this database’s historical transactions, it qualifies as an online database. A central third party that manages assets and facilitates transactions is also eliminated by this technology.
A centralized system can result in weak security and make it vulnerable to intrusion, theft, and tampering. Blockchain technology was created to give people direct access as a solution to this issue.
Crypto Token
Tokens are essentially digital assets that represent what you own, they are basically a representation and ownership of your token/asset.
Key Differences
- Cryptocurrency Token does not operate on the blockchain
In comparison to coins, tokens do not have their own blockchain that they operate on, they are working and operating on other blockchains. For example, Ethereum or Solana are blockchains that host other tokens on their blockchain, which makes them coins but the assets being hosted
- Smart contracts are necessary for crypto tokens.
Coins use the blockchain to process transactions, whereas crypto tokens use smart contracts. These are lines of code that represent agreements between two parties and appear as “if-then” statements. If both parties abide by all terms, trade or exchange of possessions will take place.
- Cryptocurrency tokens, as opposed to coins, can be moved from one location to another.
When someone sells or purchases cryptocurrency coins, their account balance changes. On the other hand, exchanging crypto tokens requires physical actions to demonstrate a change in ownership. Understanding non-fungible tokens are the key to effectively explaining this idea.
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