Token / Coin

An individual coin operates independently and uses its own blockchain, while a token is a cryptocurrency built on an existing blockchain. The Bitcoin blockchain supports only one coin, BTC, whereas the Ethereum blockchain supports smart contracts and anyone can create an ERC-20 token.

What is a coin?

Coins are native to their blockchain. For example, the Bitcoin blockchain coin is called bitcoin (BTC) and the Ethereum coin is known as ether / ethereum (ETH). The main purpose of these coins is to pay the fees associated with a given blockchain. They also store value, decide the future of that blockchain, and act as a medium of exchange, in the same manner as traditional currencies. It is for this reason that they are referred to as cryptocurrencies.

Another unique characteristic of coins is the process behind their creation. In general, coins are either mined through Proof of Work (PoW) or obtained through Proof of Stake (PoS).

Use of coins:

• Payment for a service
• Exchanging for other currencies
• As a store of value
• Governance

What is a token?

In the same manner as coins, tokens operate on the blockchain. Tokens, however, are not native to the blockchain. Instead, they are based on the blockchain and operate through smart contracts.

Tokens are assets rather than a currency, and can represent a stake in a DAO, a digital product, or an NFT. A token may be traded like a coin.

Types of tokens

Utility tokens

The most common type of token is a utility token. They have many uses for dApps, in which they serve a specific purpose within the ecosystem.

Security tokens

These are primarily used to sell shares in companies (similar to stocks or fractional shares sold through traditional markets) as well as other items (such as real estate) without the use of a broker.

Startups and large companies are currently exploring the use of security tokens as an alternative to other methods of raising capital.

Governance tokens

These are specialized tokens that allow holders to decide the future of a protocol or application that is not controlled by one organization.

Commodity tokens

These tokens are similar to security tokens in that they are backed by existing assets. Unlike security tokens, commodity tokens can only be associated with asset types known as "commodities" - e.g., coffee, oil, or gold.

NFTs

Non-Fungible Tokens (NFTs) represent digital assets. Essentially, they are a means of recording ownership on the blockchain. "Non-interchangeable" refers to the fact that each NFT is unique and cannot be confused with another. The ownership of a token represents ownership of a specific asset, such as artwork.

Although NFTs are still evolving, several types of NFT tokens have already been created; e.g., ERC-721 and ERC-1155. The latter are also interchangeable, making them useful for digital ownership of gaming items or digital copies of songs and videos.