Though often used interchangeably, "coin" and "token" have distinct meanings. They may appear similar, but they usually serve fundamentally different purposes. Distinguishing between crypto coins and tokens is crucial for any investor. Let's explore their differences and determine if one is a better investment than the other.

What’s a Crypto Coin?

Coins are crypto assets with their own blockchains and protocols, similar to fiat currencies. They are primarily designed as payment methods or stores of value. When people think of "cryptocurrency," they usually refer to coins like Bitcoin, Ethereum, Litecoin and Ripple.

What’s a Crypto Token?

In contrast to coins, tokens lack their own blockchains and operate on other cryptocurrencies' networks. Developed by various organizations on existing blockchains, tokens often share similarities and compatibility with the original coin. However, tokens are typically not meant to be just stores of value or payment methods; they represent a different asset type.

Several blockchains support token creation, with Ethereum being the most popular due to its commonly used ERC-20 token standard. Tokens rely on smart contracts and have four defining characteristics. They must be:

Transparent: Transaction data and governing rules are visible and verifiable by everyone.

Programmable: Created with smart contracts, tokens have defined features, functions, purposes, and rules.

Trustless: Tokens are decentralized, operating according to protocol rules without a central authority.

Permissionless: Tokens are accessible to all, without requiring specific credentials from users.

What Do Tokens Actually Do?

Tokens can be used like coins as speculative investment assets. However, unlike coins, they have practical purposes and can represent physical assets, utilities, or services.

Tokens enable crypto projects to offer users special access to exclusive merchandise, dApps, blockchain games, and more. They can also be used for voting on governance proposals and protocol upgrades.

Types of Crypto Tokens

Tokens can be categorized into several sub-groups based on their design and purpose. Here are the most common ones:

Non-Fungible Tokens (NFTs): NFTs, or non-fungible tokens, are unique digital assets primarily treated as luxury items without practical purposes. Each NFT represents a separate asset, such as digital art, videos, or tweets, and serves as a digital certificate of ownership. They are created using smart contracts.

Utility Tokens: Utility tokens grant holders access to goods and services, such as platform interaction rights, fee discounts, or free access to digital products. They are vital to dApps and DeFi projects, offering benefits beyond monetary value. Utility tokens are typically not regulated and are not considered investment products.

Security Tokens: Security tokens represent external assets like bonds, stocks, or property, making them tradeable as securities. Their issuance and exchange are heavily regulated by financial authorities. Security tokens can offer holders benefits like profit sharing or decision-making participation. They provide transparency and instant settlement, unlike traditional securities. There are two types: equity tokens and asset-backed tokens.

Governance Tokens: Governance tokens allow holders to participate in governance decisions, such as approving new upgrades. These decisions are usually implemented automatically via smart contracts but can be executed manually by the project team. Governance tokens help decentralize projects, empowering their holders.

Examples of Tokens

Many different tokens exist today. NFTs include popular collections like Bored Ape Yacht Club or the world’s first tweet. ApeCoin (the native token of Bored Ape Yacht Club) is a notable example, as is Maker (MKR) for governance tokens.

While most tokens are based on the Ethereum blockchain, other networks like Tron and Solana are becoming popular due to rising ETH gas fees. These networks also support smart contract functionality, attracting many developers.

Some cryptocurrencies have token versions on different blockchains, such as the stablecoins USDT and Circle's USDC which are available on BASE, Optimism, Solana, Tron, Binance, Arbitrum, Polygon and Avalanche blockchains for example.

Conclusion

The main distinction between coins and tokens is that coins operate on their own blockchain, whereas tokens use existing blockchains. Tokens are typically designed for specific purposes, so their value is influenced by more than just supply and demand or market speculation. This is also true for some coins, like Ethereum, which offers additional features, and Bitcoin, which is widely accepted as a payment method.

There are significantly more tokens than coins because creating tokens is simpler; it doesn't require developing a new blockchain.

Knowing the difference between tokens and coins is essential for understanding the cryptocurrencies you're trading or investing in. You can easily check online if a cryptocurrency is a coin or a token.

Savl Wallet offers the ability to purchase a variety of coins and tokens mentioned in this article, among many others, at fair rates and with low fees.