Are you planning to invest in an ICO (Initial Coin Offering)? Well, congratulations. But which coin? Are you investing in a coin or a token? Have you ever wondered whether coins and tokens are different or just two terms with the same meaning? If you think that a coin is the same as a token, you should think again. Many people, even some crypto companies think that both token and coin are the same, but they are not. There are some big differences between crypto-tokens and crypto-coins. Let’s find out what.
A coin is simply a cryptocurrency that has its own blockchain. The currencies like Bitcoin, Ether, and Litecoin that were built with their own customized blockchains are actual coins. Most of the new digital currencies are developed on an existing blockchain. They are not coins.
For instance, Bitcoin has its own Bitcoin blockchain which acts as the underlying technology and sets rules for the operations of Bitcoin. Then, there are currencies with their own blockchains that are built by making tweaks in the original blockchain of Bitcoin. These are called altcoins, as they are developed as an alternative to Bitcoin.
The purpose of a coin is purely financial. Coins are created to enable users to perform secure and fast money transfers from one point to another. The need for a new coin rises when the existing coin lacks a particular functioning or the developer wants to create something new, however, they can still make use of the code of other existing coins while developing a new coin.
A coin is generally used for transferring money or as a value unit for goods/services or for holding. Some other coins may give you other specific rights or value as defined by the developer or the company behind it. But the basic use of a coin is for transactions.
The crucial properties of a coin are — uniformity, portability, fungibility, acceptability, durability, divisibility and limited supply.
A token is usually developed onto an existing blockchain. It makes use of all the features of the underlying blockchain in order to create a new system. For instance, Medipedia (MEP) token has been created on top of the Ethereum blockchain and utilizes the decentralization and security feature of ERC20 to provide a seamless way of transaction within the Medipedia app. MEP token is the primary way of transaction within the Medipedia platform.
A token strictly represents an asset or a utility and cannot be therefore treated as money. It still has a market value but not as significant as a coin.
Unlike Coins, tokens can be created and launched by almost anyone, as they require little technical knowledge and skills.
Tokens are normally created to provide back-up to a decentralized application that makes use of the blockchain technology. The purpose of a token is completely for and within that particular application for which it has been created. Tokens can still be transacted on the exchange but their uses are limited. For example, MEP token gives users access to the various services and features offered on the Medipedia platform. The token can be used to pay for doctor’s consultant or a health checkup.
Besides the basic differences in creation, usability and applications, tokens and coins are almost alike. If you are not planning to create a completely new kind of application or system that would require a new blockchain technology, I would recommend that you create a token by using an existing blockchain. This will save you a great deal of time, money and resources, which you can use for developing the actual project. The token is a utility which only provides a way for users to transact within the application. You can even use an existing token like ETH for that purpose.
However, if you are planning to develop a new coin, you should know that creating a new blockchain is not going to be an easy task. In addition to developing the right code, you would need to create a very strong blockchain that cannot be penetrated. For that you would need to find and employ miners. In short, it is a time consuming and expensive process.
As for investment point of view, tokens are better than coins. The reason is that tokens are backed by applications that are designed to perform specific tasks. The token has a specific purpose and will never go out of demand as long as the application has real-world uses. On the other hand, coins are only used as money and for making payments and money transfers, all of which can be done with a single coin, like bitcoin. So, we don’t actually need all the new coins. Therefore, the demand is not very likely to rise in the case of coins.