Coin & token differences: Something That Confuses You When You Are New To Crypto
Token and coin differences is something I have been neglecting for a while. I first got the correction sometime in 2021, but I neglected because of my ignorance, I was wondering, why should there be a difference? can’t they just mean the same thing? Turns out I was wrong coins and tokens completely mean different things.
Funny how much things make sense to you when you do your research, you find yourself in awe. It really pays to read and learn. While coins can be mistaken for token it’s right to know that one of the major differences between coins and tokens is that coins have a blockchain which they operate on, tokens don’t. Tokens have to depend on coins blockchain. We can see that with the Hive coin and Hive-engine tokens. $hive is a coin that has its own blockchain called the Hive blockchain while other Hive-engine tokens were created on Hive blockchain.
Aside the Hive-engine tokens we have other examples outside Hive. Let’s look at Pancakeswap tokens and cub tokens. These are tokens that are differentiated from coins like Binance Coin because Binance coin has its Binance Blockchain, Pancakeswap and cub token are dependent on Binance Blockchain called smartchain. When tokens are used on a pre existing blockchain the native token of the blockchain is used to pay for the fees. We can see such thing in situations where we used the defi and we use BNB or ETH to pay for the gas fees.
Coins are usually used for monetary value, or store of value, not like tokens can’t be used for that purpose but tokens are sometimes used as a representation of value. For instance, NFTs, NFTs stand for Non-fungible tokens, based on their sentimental values, they are used for representation of value which is then traded for a monetary representation known as coins. This is why you pay ETH to get NFTs because ETH is the coin and NFTs are the tokens. While tokens can be used as a representation of value, some of them can also be used for monetary value.
Bitcoin is one coin that it’s only use is for store of value and used for monetary transactions, but we have other coins that are used for more, they are used both for monetary transactions, for instance we use Hive or ETH to purchase things, we can also use it for gas fees when we want to do certain things on the blockchain. Unlike Hive that transactions are totally free when sending both the $hive coin and the Hive-engine tokens, coins like ETH are used to pay for fees used to send either the ETH or the tokens.
Examples of coins are Bitcoin, Ethereum, Hive, Litecoin & Binance coin. Most coins are characterized by the mode of their mining, coins can be mined through proof of work or proof of stake. Examples of coins on the proof of work mechanism are Bitcoin and Ethereum, while proof of work is considered to be really not environmentally friendly because of its high consumption of energy power, proof of stake is preferred. Proof of stake is far much more environmentally friendly that doesn’t require high energy consumption. Hive is one, and cardano is another coin that uses proof of stake mechanism.
Tokens work on pre existing blockchain through smart contracts.
Smart contracts are instructions for a determined purpose that has to be met, only when the conditions required are available.
While some tokens might have monetary value or represent the value of an asset, some token can just be a medium of access without having a monetary value. For instance, it could be a ticket to a movie or to a concert. For instance, you can get a movie ticket token that you show at a venue to give you access to enter the venue.
This token was only designed for that particular event in that particular location at that particular time. After its use, you can’t use it somewhere else anymore. You can’t use a movie ticket token at a bar, because some tokens are extremely limited with their use, while some aren’t. But you can’t be given bitcoin as a token to represent a ticket, because Bitcoin being a coin is used for monetary transactions and store of value, but you can use bitcoin to buy a ticket and other things. So this means that bitcoin can be used to buy a token, tokens with monetary value can be used to buy coins and coins can be used to buy tokens.
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