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Carla Moretti
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Difference Between Coin and Token Explained
Carla Moretti
With almost two decades of experience in the fast-paced financial industry, Carla has established herself as a powerhouse and an innovative leader.
Difference between Coin and Token:
To make things simple for you, we can say that a crypto coin refers to the native asset of a blockchain, and a crypto token refers to assets built on top of existing blockchain technology.
An example of a crypto coin is ETH, the native coin of the Ethereum blockchain network, and BTC, the native coin of the Bitcoin blockchain.
Examples of tokens are DAI and LINK which are built on top of the Ethereum blockchain. To understand the difference between coins and tokens, we need to take a detailed look at their origin and nature.
What is a Crypto Coin?
As mentioned before, crypto coins are the native currency of its own blockchain. A blockchain can have hundreds of crypto tokens built on top of it, but it can only have one native crypto coin.
Why is that?
A crypto coin is woven into the core technology of the blockchain in a way that forms the infrastructure of the blockchain itself.
Why are Crypto Coins so Important?
Their first and foremost function is maintaining the blockchain. In systems that use the Proof-of-Work mechanism, like Bitcoin, miners use exorbitant amounts of computing power to solve difficult mathematical problems to validate their authenticity. Only then they are allowed to add new blocks to the blockchain. The process keeps the blockchain secure since malicious actors will be required to expend an unrealistic amount of computational power to make any changes to the blockchain.
This is where miners come in. The blockchain needs to provide monetary rewards for people to put in the effort to maintain the blockchain, and the blockchain does it by minting new crypto coins for every new block and giving them to the miners.
Take another example. The Proof-of-Stake mechanism, which is used by most 2nd and 3rd-generation blockchains like Ethereum and Cardano, requires people to stake their crypto coins to maintain the blockchain. The higher your stake, the more your chances of minting a new block. Since the stakers need to buy the crypto coins first, either by fiat currency or other cryptocurrencies to stake them, the blockchain receives investment and can hold the crypto coins as collateral.
Apart from this, crypto coins are used for governance as well. Since a blockchain is decentralized and works on the ideology that no centralized authority should make the decisions for the users of the blockchain, crypto coins are used for voting purposes. Users can use their crypto coins to make major decisions for the blockchain to become a more inclusive part of it.
Furthermore, coins are also used for transaction fees to “lubricate” the system. Anyone who mints a new crypto token, NFT, or any other asset on the blockchain pays for the resources required to do that in the form of the native coins of the blockchain. All forms of trading, futures, spot, or Coin-M, require transaction fees to be paid.
What is Crypto Token?
Cryptocurrency tokens rely on the blockchain to function properly. There are various forms of tokens, like utility tokens, security tokens, and non fungible tokens which, unlike crypto coins, can exist in high volumes with different functions. Most blockchains accept coins for buying crypto tokens on their own network.
The concept of digital tokens is perhaps what became the game-changer of blockchain technology. Bitcoin and other earlier technologies were more focused on being disruptive rather than constructive. The way they were structured at first, for instance, they were not designed to serve as ecosystems. Ethereum changed the way that people think about blockchain technology today. It introduced a system that supported smart contracts, decentralized finance, art marketplaces, DAOs, and much more. It challenged our thinking of what can be done with a blockchain.
A smart contract is simply a contract that you sign with the Ethereum blockchain, introducing some constraints on both yourself and the blockchain, and also allowing people to trust your project since it is verified by the blockchain. With smart contracts, the possibilities opened up. People started launching their own decentralized applications of all sorts. Currently, there are social media and video-streaming platforms, finance platforms, marketplaces, and virtually all kinds of applications running on the blockchain creating coins and tokens.
You might be wondering, why doesn’t everyone simply make their own blockchain instead of hopping onto an existing one? The simple answer is that a blockchain already has an open-source and well-developed code that is easier to build on rather than starting from scratch. Apart from that, popular blockchains have their own communities which developers can use to gain funding, support, and a strong user base.
Currently, there are a lot of blockchains sporting their own vibrant and diverse ecosystems, the most popular amongst them being Ethereum, Cardano, Solana, and Avalanche. Let’s take a closer look at some of the most well-developed crypto tokens on various blockchain technologies today.
Ethereum Crypto Tokens
There are various decentralized applications on Ethereum that hold the interest of the blockchain community.
OpenSea
OpenSea is one of the most prominent dApps on Ethereum. It is ranked as number #3 in general dApps and #1 in marketplace apps based on the user count. It is a marketplace for digital art, gaming, and all sorts of virtual assets. Apart from being a marketplace where users can sell and buy virtual assets, it also allows users to mint their own virtual assets. All that is required for you is to pay the gas fees, and you are the proud owner of an NFT that you have created.
MakerDAO
MakerDAO is one of the oldest dApps on Ethereum. It started back in 2014 and uses its MKR tokens as currency. It is an application that falls into decentralized finance (DeFi) applications, allowing users to borrow and lend cryptocurrency using smart contracts. It also has its own stablecoin, Dai, with its value pinned to the US dollar.
Oasis
The third application is the Oasis Defi application, which allows users to gain access to the Maker protocol and mint Dai. It works within the MakerDAO system and allows users a more accessible and safer way to access the service. In the long term, it plans to be the entry point for all sorts of Defi services so that it becomes safer and easier for users to handle their investments.
Cardano Crypto Tokens
Cardano is what is considered to be a third-generation blockchain. Although it is newer than Ethereum, it has quickly been gaining traction.
JPG Store
JPG Store is Cardano’s answer to OpenSea. It is an NFT marketplace that allows users to discover new artwork and communities. You can buy and sell NFTs, customize your own profile, and interact with other people in meaningful ways.
Minswap
Minswap is a decentralized exchange that allows you to trade your favorite tokens on the Cardano blockchain. It is available on mobile, too – and has its own wallet called MinWallet in which you can store your assets. It also has its own MIN farms and Double Farms which enable you to stake your tokens in return for rewards.
Wingriders
Wingriders is also a unique decentralized application that has made Cardano its home. It is an Automated Market Maker (AMM), which means that it allows trading without permission by directly using liquidity pools instead of a marketplace. Apart from that, it also has a decentralized exchange that is built using the eUTxO model.
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