Cryptocurrency vs Token: What Is It, Types And Importance

There is a wide variety of jargon, buzzwords, and obscure language used in the crypto industry. You have probably heard the terms "coin" and "token" if you've decided to dangle your toes in the crypto-verse. You might have thought that they both mean the same thing. However, that’s not the case. You can better grasp the cryptocurrency market by understanding the distinction between tokens and coins. 

Let's take a closer look at it.

What Is Cryptocurrency? 

A cryptocurrency is a digital asset that may be exchanged, retained as a store of value, and traded on a blockchain network. Because the blockchain system on which it runs directly issues cryptocurrencies, these are also frequently referred to as a blockchain's native currency. Utilising cryptocurrencies is a common way to reward users for upholding the network's security and covering transaction costs. Approximately 20,000 cryptocurrencies exist, and this number will surely rise over time. They can be used as a commerce medium or a value store.

What Is A Token? 

Unlike coins, tokens don't have a blockchain. They rather operate on other crypto currencies' blockchains, such as Ethereum. Some of the tokens most frequently seen on Ethereum include BAT, BNT, Tether, and several stable coins like the USDC. All blockchains use smart contracts. Ethereum makes use of ERC-20, while NEO makes use of Nep-5. Tokens serve the purpose of utility crypto assets in particular projects. These are used for specific functions such as paying fees, rewards, fundraising, etc. 

Types Of Tokens 

Various types of tokens are available in the crypto sphere today. Some have been described below for easier understanding: 

• Utility tokens 

These tokens are used to pay in exchange for availing of any blockchain-based services. For instance, advertisers use BAT to pay the publishers on the Brave browser, and when audiences view the ads, they get BAT as rewards. 

• Security tokens 

In conventional finance, security is described as a stake in an organisation that is publicly traded (like shares of stock).

Security tokens are conventional securities and exist on a blockchain as digital versions of conventional securities. 

These tokens might reflect a portion of ownership of a company asset. As with a traditional token, you get shares of the company’s profit for holding a security token. 

• Governance tokens 

These are specific DeFi coins that allow owners to influence a protocol's or app’s governance because they are decentralised and don't have boards of directors or any other kind of central authority. You get voting rights for holding governance tokens 

• Non-Fungible Tokens (NFTs)

NFTs are a rage right now. These cryptographic tokens on a specific blockchain network represent digital ownership of a particular digital unique content. You can trade or exchange NFTs. But, their value cannot be replaced as they are unique. 

Importance Of Tokens 

Programmers can create a cryptocurrency without a blockchain with the help of tokens. This makes cryptocurrency creation faster, easier, and less expensive.

Blockchain development is a difficult technological undertaking for developers who wish to establish their coins. A blockchain must be able to process transactions quickly and affordably to stop hackers from stealing cryptocurrency.

Simply put, a token is important for creating a cryptocurrency without the need to create a blockchain. 

Leading Crypto Tokens To Invest

Having described what crypto tokens are, let's examine some of the more popular ones:

• Shiba Inu 

Shiba Inu is a contentious meme token that witnessed a huge price increase in 2021. 

The popularity of the token was the main factor in its success. However, since then, its value has substantially decreased. It is also constructed on the Ethereum blockchain.

• Chainlink 

Chainlink is an oracle network that enables smart contracts on a blockchain to get real-time and real-world data. It is also constructed on the Ethereum blockchain.

• Uniswap 

Uniswap is the digital currency used on the decentralised exchange with the same name. Like the others on our list, the Uniswap exchange is based on the Ethereum blockchain and provides decentralised cryptocurrency trading.

• Tether 

Tether is a stable coin linked to the U.S. dollar, as is USD Coin (CRYPTO: USDC). Both are based on the Ethereum blockchain and have a $1 price target.

Furthermore, within their ecosystems, tokens can be used for various purposes. 

On cryptocurrency platforms like Raiden Network (RDN), Civic (CVC), Golem (GLM), 0x (ZRX), and Basic Attention Token (BAT), tokens are utilised for exchange as well as specific tasks like using decentralised exchanges (DEXs).

On the other hand, tokens like Truebit (TRU) Chainlink, Augur (REP), Keep Network (KEEP), (LINK), and Gems (GEM) are used to carry out tasks and uphold the integrity of their respective projects.

MakerDao (DAI), Compound (COMP), and Decentraland (MANA) are some other well-known cryptocurrency tokens (MANA). These tokens are used as NFTs for lending, borrowing, and gambling.

Tokens and coins are crucial components of the cryptocurrency ecosystem. Understanding the little but crucial distinctions between a token and a coin are advantageous for prospective investors. A good idea about both cryptocurrencies and tokens will help to evaluate them in a better way.