Different Types of Cryptocurrencies Forbes Advisor Australia

The terms “coins” and “tokens” are often used interchangeably in the crypto space, but in fact they refer to different concepts. It is easy to confuse them because both fall under the cryptocurrency umbrella term. Basically, cryptocurrency is a digital asset based on blockchain technology, and both tokens and coins fit this definition. However, these add a new concept where you could have “smart contracts” which are autonomously executing code and data stored on the blockchain.

Another very popular type of token is a stablecoin, for example, a token that follows the price of the U.S. dollar. It is powered by its own blockchain with the same name and is used to pay transaction fees on the network. As BTC was the first established cryptocurrency, coins which appeared afterwards are called altcoins — alternative coins. All altcoins have their own standalone, independent networks as well.

Cryptocurrency is described as the “native” digital asset of a blockchain network because it powers the network itself. Each blockchain’s network activity is denominated in one—and only one—native cryptocurrency. For example, the Bitcoin network’s native cryptocurrency is bitcoin (BTC), Ethereum’s is ether (ETH), and Solana’s is solana (SOL). Put simply, tokens are currencies (or other types of assets) supported by a specific blockchain, but they aren’t the native coin of the network.

Crypto Coin Vs. Token: Understanding the Difference

To better understand this concept, let’s compare it to fiat currencies. The US Dollar, for example, is a fiat currency that is not backed by any physical commodity. The US Dollar is also a centralized currency, which means that it is managed by a central authority (the Federal Reserve). A security token is a digital tokenized form of a traditional security. Tokens can enable users’ interaction with the project’s platform and services. The main benefit of a token is that it does not require creating a brand-new blockchain.

  • In the world of blockchain, cryptocurrency and crypto tokens are digital assets.
  • Bitcoin has completely shunned the need for centralized ledgers and turned into reliable stores of value.
  • They are a bit of a misnomer, as most of them are actually ERC-20 tokens (i.e., they operate on the Ethereum blockchain through a smart contract).
  • On a very simple level, coins offer the basis of a secure network, while tokens allow for blockchain apps and platforms to build upon that base.
  • See, coins are integral to the security of a blockchain and incentivize participant’s good behavior.
  • For example, you can find crypto tokens as a representation of real estate and art.

Although some conflate this term with coins, cryptocurrency should include any coins and tokens on a blockchain network. In other words, if you see these digital assets listed on reputable crypto price aggregator sites like CoinMarketCap, they are cryptocurrencies. In simple terms, you can think of cryptocurrencies as limited-use entities and crypto tokens as the flag bearers of opportunities in decentralization. For example, crypto tokens can open up new roads for representing physical assets on blockchain networks. Learn more about the crypto world and how digital assets will evolve in this space in future. Tokens, on the other hand, are digital assets that are created and managed on top of an existing blockchain, such as Ethereum.

Transfer Transactions vs Smart Contract Interaction Transactions

The native token of Bitcoin, BTC is the most liquid cryptocurrency in the market. It has both the highest market cap and realized market cap in the cryptocurrency sector. Bitcoin is used as a store of monetary value often dubbed “digital gold”, since it is secure and extremely decentralized.

The term “crypto coins” is more specific and often used to refer to individual units of a cryptocurrency. For instance, in the case of Bitcoin, the cryptocurrency itself is referred to as Bitcoin, while the individual units are called bitcoins. Similarly, in Ethereum, the cryptocurrency is called Ether, and the individual units are called ethers. Crypto tokens are digital representations of interest in an asset or used to facilitate transactions on a blockchain. They are often confused with cryptocurrency because they are also tradeable and exchangeable. All examples listed in this article are for informational purposes only.

What Is a Crypto Coin?

The use of smart contract-based crypto tokens can introduce many value advantages in different industries, such as real estate sector. For example, crypto tokens can serve a crucial role in automation and decentralization of property sales procedures. The most prominent factor for identifying token vs. cryptocurrencies differences is the outline of their use cases. An outline of the use cases of cryptocurrencies and crypto tokens can offer a clear impression of how they are different from each other. As a matter of fact, the use cases of crypto tokens and cryptocurrencies serve major inputs for defining the difference between cryptocurrencies and tokens with better clarity.

Since Bitcoin’s debut more than a decade ago, many new types of cryptocurrency have emerged. Many cryptos are available today, from stablecoins to non-fungible tokens (NFTs) to dog memes. What they share in common is the use of distributed ledger technology known as the blockchain. Another significant highlight in favor of crypto tokens in the difference between cryptocurrencies and tokens is their application in dApps.

The Difference between a Cryptocurrency and a Token

Additionally, cryptocurrencies offer greater security, as they are not subject to government or bank control. This makes them a more secure option for those who are concerned about privacy and security. This is because they’re not as volatile and aren’t subject to the same pump-and-dump cycles as tokens. Along with this growth, there is increasing confusion surrounding different terms in the industry. One such example is the difference between a crypto coin and a token.

If you send a transaction on the Ethereum network, for example, you’ll pay a fee in ETH. Those fees are then distributed to node operators as part of a blockchain’s consensus mechanism. Most well known blockchains charge a fee (known as a transaction fee or “gas” fee) to interact with the network. These fees prevent spam, and provide a way to compensate those who keep the network up and running. If you want to start lending, borrowing and more, then why trust a service that retains custody over your assets? Using blockchain technology, as long as you have a non-custodial wallet, saves you this worry.

Instead of miners using computing power to secure the network, PoS blockchains rely on “validators” to secure the network by locking up or “staking” tokens. Tokens behave very similarly to cryptocurrencies, in the sense that they are a type of currency that exists on a blockchain, and can be transferred from one account to another. However, unlike cryptocurrencies, their behaviour is not built into the blockchain software itself.

The Difference between a Cryptocurrency and a Token

Crypto tokens, on the other hand, are available as programmable logic in smart contracts which have been deployed on existing blockchain networks. Developers can tailor smart contracts underlying https://www.xcritical.com/ crypto tokens for different purposes. You can find examples of utility tokens and security tokens as promising highlights for identifying the flexibility of use cases of crypto tokens.

What About Stablecoins? Are They Coins or Tokens?

The only feature that links them is being a native coin of a blockchain network, but more often than not, they serve a purpose as some kind of currency. Coins refer to any cryptocurrency that has a standalone, independent blockchain — like Bitcoin. Put simply, if the cryptocurrency runs on its own blockchain, then it is a coin. This native coin is what you use for paying transaction fees and participating in the network. This native coin is what network participants receive in return for keeping that network secure. ERC-20 is the technical standard for fungible tokens created using the Ethereum blockchain.

Other examples of crypto coins include Litecoin, Dogecoin, and Ethereum. Building a blockchain is a complex, expensive, and lengthy task; new Web3 projects can avoid all this by using existing blockchains, which is easy and cheap by comparison. It’s sort of like how a startup can get a business off the ground more cheaply by using an infrastructure service (like AWS) instead of maintaining their own servers. A great example of this is Uniswap, a completely decentralized and automated crypto exchange. It uses UNI as its native token, an ERC-20 supported by the Ethereum blockchain.

Crypto tokens are generally designed in accordance with specific token standards such as ERC-20 and ERC-721. Many blockchains are decentralized, and smart contracts allow for interoperable tokens and self-executing code. Using these two innovations, decentralized exchanges went from pros and cons of token economy pipe-dream to reality. Put simply, smart contracts allow the easy creation of digital assets which are all interoperable on a specific network. This means that swapping, lending and transferring these tokens is much easier and more secure than swapping different crypto coins.

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