Cryptocurrency

Crypto Coins Vs Crypto Tokens: A Complete Guide For Beginners

By Rebecca Jones

Crypto Coin Vs Tokens

Although it has been about 16 years since the launch of the first functional cryptocurrency, it is still a novel digital asset that few people have in-depth knowledge about. If you are new to cryptocurrencies, you might have seen the usage of “Coins” and “Tokens” regarding specific cryptocurrencies. Although they are used interchangeably at times, they both have distinct differences with each other. 

The first thing you need to know is that coins and tokens are two different concepts in the crypto ecosystem and they are different. Then what is each and what are the differences between each other? We have answered the question in this article with examples. So, when you reencounter these terms, you won’t be confused again. 

What are Crypto Coins?

Crypto Coins

First, let’s tackle the concept of what a crypto coin is. Cryptocurrencies native to a blockchain that operates only on that specific blockchain are called crypto coins. They are mainly used for transactions in the network and for paying transaction fees. Coins are usually released to circulation through miners in blockchains that follow the proof-of-work (PoW) consensus mechanism, and the proof-of-stakes consensus mechanism does it through the validator nodes on the blockchain. The issued crypto coins only belong to the blockchain it is created. Examples of such coins include Bitcoin (BTC), Ethereum (ETH), and Cardano (ADA). 

Crypto coins typically have a limited supply, which creates scarcity and potentially reduces market inflation. This scarcity also helps push coins’ values further. Additionally, Bitcoin, the first cryptocurrency, has an additional mechanism called Bitcoin halving to further enhance the scarcity of the coin. It reduces the mining rewards by half every four years. 

What are Crypto Coins Used For?

Crypto coins were originally designed as a decentralized alternative to fiat currencies such as the US dollar, and Euros. One of cryptocurrencies’ most important selling points is that they can be accessed through the internet regardless of geographical barriers. Additionally, there are other perks for using crypto coins instead of traditional currencies such as better security, immutability of transaction, pseudonymity, possibly reduced transaction fees, and better transaction speed, etc. 

They are used as a way of storing value, exchanging for other cryptocurrencies, paying for goods and services, and transferring to other users, just like you would with fiat currencies. Additionally, some crypto coins can offer some extra perks. For example, Cardano (ADA) holders can vote on the decisions taken on the blockchain software.  

What are Crypto Tokens? 

Certain blockchains make it possible to develop decentralized projects. Such projects may also develop their cryptocurrencies for various use cases. Such cryptocurrencies that are built on an existing blockchain for a decentralized project are called crypto tokens. Naturally, tokens offer a variety of functions including use in decentralized applications (dApps), improving security, and enabling governance of a platform. 

The functions of a token vary depending on the smart contracts in a blockchain. For example, the ERC-20 standard is a smart contract protocol in the Ethereum blockchain that outlines the functionalities of tokens in the blockchain. Tokens that satisfy the standards set by a blockchain can interact with the dApps in their respective ecosystems. 

Tokens are usually launched into circulation through Initial Coin Offerings (ICOs), and airdrops. ICOs make it possible for institutional investors to get their hands on cryptocurrencies, usually at a low price. Whereas, airdrop promotes the adoption of the decentralized application by rewarding the users with the tokens for completing specific tasks. 

What are Crypto Tokens Used for?

Tokens are created on an existing blockchain and they can be used on that specific blockchain or their decentralized application (dApp). Tokens can serve a variety of purposes ranging from making decentralized applications possible to buying and selling rare NFTs on dedicated marketplaces. However, they can be also held and traded like any other cryptocurrency in the market.

That being said, usually, tokens have less liquidity and limited availability. Unlike coins, tokens are not mined, they are made available to the public through crypto airdrops, ICOs, and as a reward for staking. According to the use case of tokens, they are categorized into numerous types including utility tokens, security tokens, governance tokens, stablecoins, and wrapped tokens. 

Crypto Coins v/s crypto Tokens Differences

Now that you have a better understanding of the concepts of coins and tokens, let’s see what factors make the two differentiate from each other with the help of the below comparison table: 

Crypto CoinsCrypto Tokens 
Creation Created on a dedicated blockchainRuns on existing blockchains 
PurposeStore of value Transactions in the blockchain Transaction fee on the blockchain Store of value Utility in dApps Security Granting governance More 
Issuance New coins are usually issued through mining or staking depending on the consensus mechanism of the blockchainFull supply is created at the launch and it is introduced into circulation through ICOs and airdrops 
SupplyLimited supply to address to enhance the scarcity of the coin Supply can vary depending on the requirements of the project.  
Availability Available in popular centralized and decentralized exchanges    Only available on certain centralized and decentralized exchanges 
LiquidityUsually has better liquidity and tends to trade in high volumesLiquidity and trading volume are often lower 

Top Examples of Crypto Coins 

Examples Of Crypto Coins

Today there are hundreds and thousands of cryptocurrency coins in the market. To better understand what a crypto coin is, here are some of the top examples with their usage and characteristics: 

1. Bitcoin (BTC)

Bitcoin is the first cryptocurrency that has been ever built on its own dedicated blockchain. It was created by a person or a group of people with the pseudonym “Satoshi Nakamoto” in 2009. The maximum total supply of Bitcoin is capped at about 21 million to increase its scarcity and limit inflation. 

Bitcoin works on a proof of work (PoW) consensus mechanism to secure the transactions. A special kind of node called the miner nodes, or the “miners” validate the transactions by running the Bitcoin mining software on their machines. Miners who manage to validate transactions first receive Bitcoin as a reward. Bitcoin can be only transferred within the Bitcoin blockchain it cannot exist outside it. 

Although Bitcoin was created as a means of transaction, it is now used as a store of value in the digital space. Seeing the volatility of the Bitcoin market, investors slowly started using it for trading like stocks and commodities. Now, it can be also used for shopping and purchases such as luxury cars, jewelry, accessories, branded clothes electronics, and more. 

Bitcoin is available on almost all of the cryptocurrency exchanges both centralized and decentralized. It is one of the most valuable cryptocurrencies at the moment and as the technology is improving, it seems like Bitcoin will stay at the top for a long time. 

2. Ether (ETH)

Ether is the native cryptocurrency of the Ethereum blockchain, with the ticker ETH. It is built as a more affordable and faster alternative. It uses a Proof-of-Stake consensus mechanism for validating transactions. To participate in the validation process, a validator needs to stake 32 ETH. If a validated transaction is proved invalid, the validators might lose the entire staked coin or a portion of it. However, they receive the newly minter ETH and the transaction fee for validating transactions. 

Ethereum allows developers to create and deploy their decentralized applications (dApps) and smart contracts without any interference from a third-party entity. The dApps need to pay a gas fee in Ether to the blockchain for transactions. As Ethereum started supporting dApps and started providing services for an affordable price, more people started adopting it instead of Bitcoin. 

Similar to Bitcoin, Ethereum is also seen as an asset for long-term investment, trading, and purchases. Some of the companies that accept Ethereum as a payment include Newegg, Twitch, CheapAir, Microsoft, Tesla, and more. 

3. Cardano (ADA)

Cardano is a blockchain that uses a less energy incentive proof-of-stake(PoS) consensus mechanism similar to Ethereum. Cardano was the first to adopt PoS to their blockchain as an initiative of the blockchain to go green. So, the validation is also similar to what we have learned above with the Ethereum blockchain.   

The native cryptocurrency of Cardano has the ticker ADA, and it has a maximum supply of 45 million. In addition to using ADA for peer-to-peer transactions, the holders of the cryptocurrency have the right to vote on any proposed changes to the software. 

Cardano aims to become a scalable, sustainable, and interoperable blockchain ecosystem by providing seamless integration with other blockchains. They aim to stay true to the goal of being a decentralized platform, by offering a voting system and assuring that all decisions made will be peer-reviewed. This approach of Cardano has attracted many investors to the platform. 

Examples of Crypto Tokens

Examples Of Crypto Tokens

Now, it is time to examine some of the most popular crypto tokens. By understanding these examples, you will be better equipped to discern between a crypto coin and a token. 

1. Shiba Inu (SHIB)

Shiba Inu is a crypto token built on the Ethereum blockchain. It is a special kind of cryptocurrency called meme coins, featuring a popular meme. It was created as a joke but became popular due to strong community support, giving birth to a new genre of cryptocurrencies called meme coins. 

Shiba Inu is a utility token of the ShibSwap ecosystem. ShibSwap is a decentralized exchange (DEX) that allows users to trade, and swap. These utilities of the token make it more desirable and valuable.

As we have established in the above sections of this article, tokens are generated completely at the launch. The initial total supply of SIB was 1 quadrillion tokens, but half of them has been removed from circulation through burning to leave about 500 trillion SHIB in circulation. Over the years, the Shiba Inu community and the ecosystem they built have expanded massively. At the time of writing this article, the Shiba Inu ecosystem has two more tokens such as Leash (LEASH), and Bone (BONE). LEASH is used to reward the community for their support, whereas BONE is used as a gas and governance token in the network. 

2. Chainlink (LINK)

Chainlink is a decentralized blockchain hosted on the Ethereum network. The token follows the ERC-20 protocol, the standard token protocol on the Ethereum blockchain. Chainlink is a network that communicates off-chain data to a blockchain. It allows the existence of hybrid smart contracts that can securely enable computations with on-chain and off-chain data. 

The maximum supply of Chainlink tokens is limited to 1 billion tokens, and unlike most of the tokens, only a portion of it has been issued so far. To be exact, the circulating supply is about 626.85M LINK at the time of writing this article. 

The token is majorly used for providing remuneration to chainlink network participants and to serve as collateral for the network’s smart contracts. The use case of LINK also extends to the equitable distribution of NFTs, gamification of personal savings, rescheduling of cryptocurrency token inventories, and more.   

3. Hamster Kombat (HMSTR)

Hamster Kombat is a TON blockchain-based clicker game that has grabbed the attention of millions of users. The game rewards its users with an airdrop of its native token, HMSTR. The point of the game is to earn as many in-game points as they can through various ways including tapping, inviting friends, completing social tasks, and more. Users can trade their HSTR tokens in the platform and it can be used for purchasing various in-game elements that can enhance your gaming experience. 

The maximum supply of HMSTR tokens is capped at 100 billion and about 64.38% of the total supply was made available at the time of token generation. 75% of the initial supply is allocated as player rewards to incentivize engagements. The token was launched in September this year, and it has been made available in various decentralized and centralized exchanges. 

What are Wrapped Tokens?

If you are new to cryptocurrencies, the concept of wrapped tokens can be also confusing. So, what are wrapped tokens? let’s explore. 

Wrapped tokens are a special type of cryptocurrency that makes interoperability between two blockchains possible. The wrapped tokens can represent a cryptocurrency of a blockchain in another blockchain. 

A wrapped token is created by locking the original cryptocurrency in a smart contract and issuing equivalent tokens in another blockchain. This allows users to use their cryptocurrencies on multiple blockchains and decentralized applications. The major difference between tokens and wrapped tokens is that tokens are usually restricted to the blockchain, wrapped tokens can transcend this border. 

Some of the top examples of wrapped tokens include Wrapped Bitcoin (WBTC), WETH (WETH), Wrapped wETH (weETH), Coinbase Wrapped BTC (CBBTC), and Wrapped BNB (WBNB). One of the major advantages of wrapped tokens is the access to a vast number of Decentralized Finance services across blockchain networks. 

What are Stablecoins?

We have already learned about crypto coins, crypto tokens, and wrapped crypto tokens. One of the other major genres of cryptocurrencies is stablecoins. So let’s explore a little more about it. By understanding these concepts you will be better equipped to navigate through the world of cryptocurrency, especially if you are a beginner. 

Stablecoins are cryptocurrencies that have their value pegged to another digital or real-life asset such as the US Dollar. They are crypto tokens created on an existing blockchain. Most stablecoins are created on the Ethereum blockchain with ERC-20 token standards, making them accessible to a variety of DeFi platforms on the network. 

Examples of stablecoins include Tether (USDT), USDC (USDC), First Digital USD (FDUSD), USDD (USDD), and PayPal USD. Unlike traditional cryptocurrencies, stablecoins have better price stability making them a preferable asset for digital transactions. 

Conclusion 

In the context of cryptocurrencies, the terms coins and tokens are used interchangeably. However, they both represent completely different things at least technically. In this article, we have explored the differences between crypto tokens and coins with examples.

We have also looked into some of the other common su genres of cryptocurrencies such as wrapped tokens and stablecoins. So, as a beginner in the cryptocurrency world, what other terms do you find hard to understand? Let us know in the comments. 

Rebecca Jones

Rebecca Jones is an experienced financial writer with over 7 years of in-depth knowledge in cryptocurrency, blockchain technology, and digital finance. She holds a degree in Economics from the University of California and has completed professional certifications in cryptocurrency and blockchain technology from the Blockchain Council. Throughout her career, Rebecca has contributed to leading financial publications authoring numerous insightful articles that help both beginners and seasoned investors navigate the fast-evolving world of crypto. Her expertise spans market analysis, crypto regulations, and decentralized finance (DeFi), making her a trusted voice in the industry.

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