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July 12, 2018, 04:11:02 PM |
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Hello guys, how, is the bear treating you? How many people use the two terms ‘coin’ and ‘token’ interchangeably? Is it unusual to for people to assume the two are one and the same? There is a significant number of people in the cryptocurrency world who might not be aware that there is a clear distinction between what is deemed as a coin and what is defined as a token. Whilst both currencies are formed using cryptography, there is a notable difference in their nature that is not to be overlooked. It is important to know the difference if one is considering investing in cryptocurrency. This is because it allows investors to make an informed decision as to whether their interests are best served when they purchase cryptocurrency coins or when they become token holders.
The Nature of crypto-coins.
The origins of cryptocurrency can be traced back to 2009 when Bitcoin was formed. This is the first coin that was created on its own operating system which we call ‘the blockchain’. There are other coins that were created after that are now known as ‘altcoins’ (meaning alternative coins to Bitcoin). Popular examples of such coins are Ether and Waves. However, not all coins operate on their own blockchain as there are some that are Bitcoin-based, such as Namecoin, Litecoin and Dogecoin. ). Therefore, whilst running a cryptocurrency on its own blockchain platform qualifies it to be called a coin, it should be noted there are exceptions because not all coins are on their own platform.
Another characteristic that differentiates coins from tokens is that coins can be ‘mined’. This simply means the validation of transactions which results in successful miners obtaining new cryptocurrency as a reward for their effort. The reason for coins being minable is simple, it only makes sense for a blockchain to be fuelled by its own native currency and so the miners are rewarded in that same currency. For example, miners on the Waves platform are rewarded in the Waves currency which is its native coin.
Cryptocurrency coins are more inclined to utility rather than value. Most coins are created to serve as money. This is the reason why many people who generalise cryptocurrency, criticize coins for not having any underlying value. Some critics have gone as far as labeling all virtual currencies as nothing but a scam. However, those that are passionate and thrive in the (Fintech Financial Technology) ecosystem would argue that such critics are overlooking many advantages. For example, the invaluable democratisation of monetary systems that has been made possible by cryptocurrency and blockchain technology.
The concept of Crypto- Tokens explained.
Tokens are basically digital assets that are housed on any blockchain platform of the creators’ choice. Crypto-tokens are usually a representation of tangible value because more and more businesses are tokenizing their resources and assets. Other projects create tokens that represent a portion of the business for crowd investors which is known as an equity token. The Security Exchange Commission (SEC)in the United States went a step further by defining tokens as securities because they represent value.
There are many tokens in existence as the process of token creation has been simplified over the years. Waves platform, for instance, has reduced the process on token creation to a matter of minutes. Now virtually anyone can create their own token. So the first thing to note when identifying a token is, it is not the native currency of the blockchain it runs on. For this reason, tokens are not mined like coins are.
To conclude, the main difference between coins and tokens is, the former is a method of trade whilst the latter is a representation of an asset or any form of value.
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