Have you ever wondered what the difference between a coin and a token is? The main difference between these two comes down to utility.
A coin is defined by the following characteristics:
- A coin operates on its blockchain. A blockchain keeps track of all transactions that involve its native crypto coin.
- A coin acts as money. Bitcoin was created for the sole purpose of replacing traditional money. The paradoxical appeal of transparency and anonymity inspired the creation of other coins, including ETH, NEO, and Litecoin.
- A coin can be mined. On a proof-of-stake blockchain like Electra Protocol, you can earn coins by staking. On proof-of-work blockchain, like Bitcoin, you can earn through traditional mining.
XEP is the native cryptocurrency on the Electra Protocol and as a result a coin. Currently, Electra Protocol is not yet having support for tokens. But with the release of the smart contracts platform anyone will be able to publish own public tokens on the Electra Protocol blockchain.
Unlike coins, tokens do not have their blockchain. Instead, they operate on other crypto coins’ blockchains. For example, Tether (USDT) is running on the Ethereum blockchain.
Tokens are an array of codes that facilitate trades or payments between users. When a token is spent, it physically moves from one place to another. This is different from coins because crypto coins do not move around; only account balances change. When you transfer money from your bank to someone else’s, your money doesn’t go anywhere. The bank changed the balances of both accounts and kept the fees. The same thing happens with blockchain – the balance in your wallet changes, and the transaction notes that. Another notable difference between tokens and coins is what they represent. While crypto coins are essentially digital versions of money, tokens can stand for assets or deeds. Another interesting thing about tokens is how easy it is to create one. Some networks, like Ethereum, provide templates where you can brand your tokens and start trading. This makes it so anyone with little to no technical knowledge can become a market maker. Creating a coin requires the creation and maintenance of a blockchain ecosystem, which is a lot harder to do.