My First Confusion — Is There a Difference Between a Coin and Token?

Prior to 2021, I’ve been living in my own confirmation bias where most of the story in regards with the crypto that I know of is mostly from friends or family member who had held bitcoin in the early days and riding it to almost millionaire status before it came crushing down.

It never occurred to me to Google or read more about this as I believe that I’ve come across a good amount of articles to understand about it. After all if the major news outlet had produced an article on why this would be the next Ponzi scheme, it must be it, right?

Yep, that huge drop and I thought I did good not to dabble into this and just focus on stock market (but little do I know what’s brewing for the next few years)

As someone who has zero idea about cryptocurrency before, it was quite shocking when I first visit the CoinGecko website there’s a long list of coins available! And my first thought was why do we need this many coins?

That’s when I found out that technically there’s a difference between coin and token. This explains why there’s 13,475 “Coins” currently listed in CoinGecko compared to around 180 currency available in the world.

This findings, although it’s a revelation answering the question; “Why do we need so many cryptocurrencies?”, it also open another Pandora Box

source: CoinGecko — World’s largest independent cryptocurrency data aggregator with over 13,000+ different cryptoassets tracked

Crypto Coin VS Crypto Token

1. The blockchain Network

Crypto coin operate on its own blockchain infrastructure to manage all the transaction and processing of its data. An example of this coin are: Bitcoin (BTC), Ethereum (ETH) & Luna (LUNA — run on its own Terra Network).

These coins, which sometimes also referred to as native tokens are the one that act as a “digital currency” which will be used for all transaction in their network (things can get more complicated when we talked about wrapped coin i.e WBTC & WETH but let’s stick to this basic first).

Loosely translated — This is similar like how we would normally use USD currency when buy stuff at a local store in the US or Thai Baht when we go to Thailand instead of MYR.

Crypto token on the other hand will utilize the existing blockchain infrastructure i.e Ethereum and will have to pay some fees to the owner of the blockchain infrastructure for each transaction done on their network.

Since a token is not native to the blockchain they are inhabiting, the transaction are normally executed via a smart contract.

Loosely translated — since a coin is the currency, token on the other is the deeds (or your Sales and Purchase agreement when buying a house). Whereby you can pay using your coin to own this deeds. And similar like there’s a different kind of deeds in the real world, there’s a lot of tokens as well available to be owned in the crypto space which you can read more in the next points.

2. Usage

Crypto coin is normally use as a store of value; similar like our FIAT currency. This means that a coin can be used to perform a payment in this space and also act as an asset class of its own.

Crypto token on the other hand has a more diverse usage depending on the reason for its creation. There are plenty of tokens in existence and below are some example of a token and its usage:

a. Platform Token — a token that is issued to people that perform certain transaction on their token. Normally issued by a protocol operating a Decentralized Exchange / Centralized exchange. An examples of this is Uniswap and Sushiswap

SushiSwap & UniSwap logo

b. Governance Token — A token that gives the token holders a right to vote for the direction or action to be perform by the protocol. This concept is heavily used by a DAO protocol (Decentralized Autonomous Organization)

CurveDAO logo

c. Non-Fungible Token (NFT) — It is an asset class of its own and it represent your ownership of that assets.

LooksRARE logo — one of the latest NFT platform with new tokenomics model

Conclusion

The information provided here is just a rough guideline to navigate into this space. And as the information and technology in the crypto space is evolving very quickly, some of the information that you find today can become obsolete the next day. But knowing this difference and the subcategory for each of the token had helped me to better navigate in the asset class that I wanted to HODL into.

And yes, before I forgot. None of this is a financial advice and all the information provided is a reflection of my own reading :)