Many of those who have recently become interested in the field of digital currencies and have started following news and articles related to it have probably noticed that the term "coin" is used to refer to some currencies while "token" is used for others.

If you are among these individuals and believe that these two terms have the same meaning and do not differ from each other, then follow this article to the end. Although both "token" and "coin" are used to talk about digital currencies, they actually have significant differences.

Stay with us as we define both terms first and then better understand their differences and similarities. Undoubtedly, this understanding will help you make more confident decisions when choosing your next digital currency investment.

Coin:

Coins refer to those cryptocurrencies that have their own dedicated blockchain and are not reliant on the blockchain of other projects. Coins are the native currency of a financial system used for transactions and receiving fees within the blockchain of a digital currency. Examples of digital currencies such as Bitcoin, Ethereum, Tron, and some others have their own dedicated blockchains. These cryptocurrencies were created with the aim of being used as a tool for transactions and as a source for storing value.

It should be noted that designing coins has its own specific challenges, and most of them are issued through mining, including Bitcoin and Litecoin.

Token:

If a cryptocurrency issued in the digital currency market does not have its own independent blockchain and its transactions are carried out on another network, it is referred to as a token. Each token has its own specific utility, and depending on the value and importance it can create for humanity and how successful it is in achieving that utility, its value will vary.

How does a token differ from a coin?

In comparing coins and tokens, the main differentiating factor is whether they utilize an independent blockchain network or not. So it can be easily understood that a coin is a cryptocurrency that has its own dedicated blockchain network.

Another key difference between tokens and coins is that designing a coin requires the knowledge and information necessary to design and create a dedicated blockchain, whereas creating a token does not require such information, and it can be created in a very short period of time.

What is the purpose of creating tokens?

Tokens are created by various companies on the blockchain technology platform for the following purposes:

Cost reduction: Tokens are created with only minimal costs and a relative familiarity with programming knowledge and smart contracts.

Ease of creation: Creating an independent blockchain requires providing facilities from scratch. However, having some knowledge of smart contracts is sufficient to create a token, and it can be created on various blockchains within minutes.

High security: Since security is crucial in the world of cryptocurrencies, many companies create tokens on large and secure digital currency platforms such as Ethereum.

What is the use of coins?

One of the main uses of coins is their use as a store of value, a tool for trading, buying, and transferring money. However, coins may have various other uses within their own blockchain network, such as Ethereum, which is the second most valuable coin in the digital currency market and is used to pay for transaction fees within the network and purchase some other cryptocurrencies.

Bitcoin is another widely used coin currently, which in some countries is used as the official currency. However, there is a significant gap in its widespread adoption, with some of the main reasons being its very high fluctuations and lack of backing for this cryptocurrency.

Most Famous Coins:

Some of the most famous coins include:

Bitcoin Bitcoin (BTC) is the first and most valuable cryptocurrency in the financial market of digital currencies, which was introduced in 2009. This digital currency has been able to maintain its top position since then.

Litecoin Litecoin (LTC) is also one of the established coins that was created a few months after the official launch of Bitcoin and aimed to address Bitcoin's issues.

Ethereum Ethereum, known by its symbol (ETH), is another coin that has held the second position in the digital currency market for a long time in terms of value and is traded by many users daily. Ethereum is mainly known as a platform for executing smart contracts. It is worth mentioning that most of the well-known tokens in the market operate on the Ethereum blockchain.

Cardano (ADA) Cardano or Ada is another coin that is very similar to Ethereum in terms of utility. This coin was created in 2015 by one of the co-founders of the Ethereum network.

Among other well-known coins in the digital currency market are Solana, Ripple, Binance Coin (BNB), and Avalanche.

Types of Tokens:

Tokens have been divided into two main categories since their emergence by the digital currency community: fungible tokens and non-fungible tokens (NFTs). However, these two categories are further subdivided into other subsets. In general, the classification of token types, like many other cases, has been relatively subjective and based on individuals' theories.

What is a Fungible Token?

If, in a financial transaction, a commodity or money can be exchanged for other units of itself, and its value is not greater or lesser than others, it will be considered fungible.

What is a Non-Fungible Token (NFT)?

 Non-fungible assets are those assets for which exchange is not possible. For example, if you lend your car to your friend, your friend cannot return another car instead. In the world of cryptocurrencies, there are also tokens that cannot be exchanged with similar tokens. For example, NFTs. NFTs are essentially rare cryptocurrencies, each unit of which is non-exchangeable with another unit and has unique ownership. The NFT space is gradually expanding, and there is a possibility that it will capture a significant portion of the market. However, they have not been able to achieve a proper position yet. Therefore, we only intend to refer to three subsets of fungible tokens below.

Three Main Categories of Fungible Tokens Fungible tokens are categorized into three main groups, and these main categories may also have further subsets. However, we will only introduce these three main categories:

Utility Tokens:

Utility tokens are a type of cryptocurrency that enables the payment of goods and services within one or more specific projects. Currently, many tokens in the market belong to the category of utility tokens. For example, consider the LINK token, which is used to pay for services within the Chainlink project. The value of such tokens is determined by supply and demand and various other factors. These tokens do not have any specific financial backing and are not tied to the credibility of any company.

Governance Tokens:

Governance tokens are a type of digital currency that allows holders to participate in decisions about the future of a project. For example, the UNI token is a governance token that allows its holders to participate in decision-making processes for the decentralized exchange Uniswap through voting.

Security Tokens:

Security tokens are cryptocurrencies that represent ownership of a company, asset, or specific activity's profits. For example, when a company is sold, and its shares are distributed among buyers or investors in the form of tokens, these tokens are recognized as security tokens.

Summary:

Digital assets are commonly referred to by various terms such as cryptocurrency, coin, token, and cryptocurrency. However, despite all these terms being synonymous, there are important differences between coins and tokens. Coins essentially refer to cryptocurrencies that have their own independent blockchain and are more familiar to us, such as Bitcoin, Ethereum, and so on. In contrast to coins, tokens are cryptocurrencies that lack an independent blockchain and rely on other blockchain networks for their operation. Tokens can serve various purposes, such as Shiba Inu, SAND, and Chainlink. Themajor difference between coins and tokens lies in their use. Coins are primarily used as a store of value, for transferring money, and as a means of conducting transactions. However, tokens, given their specific use cases, are often recognized as utility cryptocurrencies.