When entering the crypto world, the existence of crypto tokens and coins in crypto assets looks similar.
Even though they look the same, the fact is that crypto tokens and coins in crypto assets are different. So what are tokens and their functions?
The function of crypto tokens is to be used as a medium of exchange when running a project service that provides tokens.
Meanwhile, the function of coins in crypto assets is like money in general. Coins are used to transfer money as well as store value or investment.
What is Token?
After understanding the function and difference between tokens and coins, it’s a good idea to understand the literal meaning of both.
A crypto token is accessed from a decentralized application built on a blockchain system. Crypto tokens also have a market value, but technically, crypto tokens are not currency.
While crypto coins or better known as crypto, are digital assets made to be a cryptographic exchange tool.
The goal is to secure financial transactions, control the process of creating additional units, and can be used to verify asset transfers.
Types of Tokens
Security tokens are crypto assets issued on a blockchain network and represent fractional ownership of an asset, similar to stocks.
You can identify the types of tokens with the following identities.
Representation of something unique and the only one in the world.
A non-Fungible Token or NFT is a digital asset representing a valuable item with an exchange rate that cannot be exchanged. The transaction is recorded in data on the blockchain.
Means of getting products or services on a platform. A utility token is a digital asset used in blockchain services.
This type of token is created to serve or facilitate blockchain technology needs.
Payment tokens replace regular payment card account numbers with unique digital tokens in online and mobile transactions.
Tokens can be limited to transactions with specific mobile devices, merchants, or transactions.
The tokenization process happens behind the scenes in an invisible way to consumers.
Has a value linked to a fiat currency? Fiat money is a currency with no intrinsic value but a legal tender in the economy.
A clear example of fiat money is the paper money we use daily.
Fiat money can fulfill its function as a means of payment if it can be used as a legal means of exchange for fees, alias without exchanging goods or bartering certain goods.
The owner of fiat money can use his money which has the same value as certain services or goods.
The Difference between Tokens and Coins in Crypto Assets
The difference between crypto coins and tokens is difficult because they are almost similar.
A crypto token is any digital asset created on a blockchain and can be built on top of another’s blockchain network.
Meanwhile, coins in crypto assets are digital assets built, stand, and run on their blockchain network.
How Tokens Work
The way crypto tokens work refers to the various encryption algorithms and cryptographic techniques that make up the blockchain.
There are three differences in how tokens work between tokens and coins in crypto assets as follows:
1. Differences in the Blockchain System
A cryptocurrency will be referred to as a crypto coin if it has a blockchain system.
Meanwhile, crypto is referred to as crypto tokens when they utilize the blockchain as another crypto.
A crypto coin is a digital asset that operates on its blockchain. The blockchain keeps track of all transactions involving its original crypto coin.
For example, all Ethereum transactions are carried out on the Ethereum blockchain.
The Ethereum blockchain is a crypto asset similar to Bitcoin because it can be used in peer-to-peer transactions or traded on exchanges at speculative prices.
2. Transfer Rules
A coin cannot transfer to another because it uses a different blockchain system.
Meanwhile, tokens can transfer to other tokens as long as these tokens are still in one blockchain.
Blockchain is a way of digitally storing data that is interconnected between one device and another blockchain system device.
One of the reasons why this technology has many users is that many people think that the system is more transparent and can generate profits.
3. Investment Options
Crypto coins or tokens can both be used as investment objects.
Although the coin’s reputation will be the first consideration for an investor in determining which asset to choose.
Investments in crypto assets are indeed quite risky for beginners.
To investors with a conservative risk profile, it would be best to start managing money with safer instruments.
Thus a review of what tokens and coins are and their differences in crypto assets.
Want to know more about crypto investing? You can read articles about crypto knowledge at Indodax Academy.