Coins and tokens are frequently confused and mistaken for the same thing. This could be due in part to the fact that terminology in the crypto universe is not always as straightforward as would be preferred. And while they are both units of cryptocurrency, coins and tokens do have different functionalities. To some extent, at least.
There is an ongoing debate about the distinction between coins and tokens. As a result, there are at least two major opposing theories regarding their functionalities and applications. This article aims to clear up any confusion about these two types of digital assets by explaining their features. It also includes examples of coins and tokens.
It also includes examples of coins and tokens. By the end of this article, you should be able to tell the difference between a token and a coin.
ESSENTIALS OF COIN VS TOKEN
- Tokens and coins are frequently confused as the same thing.
- There are two methods for distinguishing between coins and tokens.
- Coins are native to their respective blockchains.
- Existing blockchains are used to create tokens.
- The functions of coins and tokens frequently overlap.
Dilemma of differentiation
There are two approaches to explaining coins and tokens, as mentioned in the introduction.
The fundamental distinction
The basic distinction is based on purpose and function. Here, a coin is deemed a financial asset with the sole function of making payments. As such, it displays most of the following characteristics:
- Fungibility, which means that one unit equals another.
- Divisibility refers to the ability of each unit to be divided into smaller units.
- Acceptability, meaning that the cryptocurrency is widely accepted as a medium of exchange Limited supply, meaning that the total number of units is capped and constant Uniformity, meaning that all versions of a given denomination share the same value
- The ability to transfer and exchange units is referred to as portability.
- Durability means that units can be used repeatedly without losing value.
A token like Poocoin, on the other hand, has additional functionality that goes beyond money, as we will see below.
This leads us to the next differentiation strategy. This one is a little broader and more inclusive, but it also blurs the distinction between coins and tokens. The main distinction between the two types of digital assets is that coins are native to their blockchains, which means that they were created at the launch of a given blockchain to be used only on that blockchain. Tokens, on the other hand, are built on top of pre-existing blockchains that already have a native currency.
Consider bitcoin and ether, which were created on their respective native blockchains, Bitcoin and Ethereum. Tokens like Mexc, on the other hand, have a different story. Many tokens have been created on an existing blockchain that has its own cryptocurrency, such as Ethereum, which has ether as its native cryptocurrency. As a result, ether is required to power these token transactions.
The tricky part about the alternative distinction is determining the functional difference between coins and tokens. This is because the methods for using coins and tokens frequently overlap, which is due in part to the versatility of tokens.
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