The world of cryptocurrencies is riddled with acronyms and terminology that can be extremely off-putting for those new to the arena. And one question that seems to arise again and again is “What is the difference between coins and tokens?” Let’s dive in...
Operating on their own independent blockchains, cryptocurrency coins represent digital money and are therefore intended to be used as a means of payment for goods and services, outside of their native platform, in much the same way that you would use physical money in the real world. They also hold the same characteristics as real money, in that they are fungible, divisible, acceptable, portable, durable and have limited supply.
However, unlike real or physical money, cryptocurrency coins are not universally accepted by all merchants. Bitcoin is a great example of a cryptocurrency coin, as the Bitcoin blockchain can only be used to generate Bitcoins, which in turn, can be used as a method of payment, where accepted.
Cryptocurrency tokens, on the other hand, are created using programmable blockchains such as Ethereum. Yet, unlike cryptocurrency coins that represent digital money, cryptocurrency tokens perform a number of functions and come in two forms, security tokens and utility tokens. Let’s take a closer look at each of these, beginning with security tokens.
As the name states, security tokens represent securities. In the world of finance, the term security is used to describe a tradeable asset that holds some type of monetary value. Security tokens, therefore, represent legal ownership, in part, of any assets owned by the issuing company, including but not limited to cash, cash equivalents, stock inventory and properties.
And then we have utility tokens.
Unlike security tokens, utility tokens are not linked to the value of a company, and instead, were designed to perform some type of utility within the confines of their network. For example, utility tokens are able to function as a medium-of-exchange within the microeconomy of their blockchain project, allowing users to spend their tokens to gain access to a product or service.
Utility tokens can also be used to obtain greater voting rights, allowing owners to have their voices heard in relation to decisions impacting the future of their parent project. In fact, utility tokens are not limited to one particular role; and as such have been integrated within blockchain projects in many unique and creative ways.