As new crypto projects rise and new investors are looking to take advantage of the overall market dip, one of the questions I’m being asked is, “What is the difference between a coin and a token in the cryptoverse?  Upon thinking about it, I realized how simple, yet great, a question it really was.  I know the difference, yet I still use them interchangeably when describing a token.  Almost always referencing it as a coin even if I truly know it is a token.  As I read other articles and posts, I saw I was not alone.  Describing a crypto project as having a coin seems to be a common shorthand regardless of whether the project is actually represented by an actual coin or a token.

Before I get started though, a quick disclaimer.  This article is not meant to be financial advice and I am not a financial advisor.  Everything we write/publish on UnderstandingCrypto.info is meant to be entertaining and informative.  Always do your own due diligence and speak to a financial adviser before making any financial decisions, especially in a volatile market such as crypto.  With many cryptos being down 50% or more since just a few months ago, an example of crypto volatility is rarely more prevalent than it is right now. 

Difference Between a Coin and a Token

The difference between a crypto coin and a crypto token is a simple one.  This likely leads to the reason why they are so interchangeably used.  However, while the difference may not seem that large on the surface, the implications of what the difference can mean is something you need to consider prior to investing / supporting a crypto project.  In fact, it is this reason why I will often veer away from some tokens over others (hint, I used the term ‘token’ there in particular).

The most significant difference between a coin and a token is that a crypto coin is a cryptocurrency that operates on its own, dedicated blockchain.  It is its own entity.  A crypto token is a cryptocurrency that requires another blockchain to exist and operate. 

What is more likely to be around 5 years from now?  A token built on a coin’s blockchain or the coin’s blockchain itself that supports the token and thousands of others much like it?

A blockchain is essentially a ledger.  It is an ongoing, reverified record of every single transaction made using the cryptocurrency.  That ledger essentially lives and breathes digitally, constantly updating itself based on code and transactions.  The ledger is then spread in concert to all participants of the digital network via nodes, wallets, etc.  The largest obstacle a blockchain has is in trying to weigh speed of the network over security.  Usually, a faster network will be more centralized.  A more secure, decentralized network will generally have more nodes associated with it, which can sometimes slow down transaction speed (TPS – Transactions per Second).  That is why projects such as Horizen $ZEN are so great.  It was designed with a balance of scalability, security and reliability. High TPS and high consensus. All zero-knowledge enabled, which helps maintain privacy.

Projects such as Bitcoin, Horizen and Ethereum have coins that represent them ($BTC, $ZEN and $ETH).  Each project has its own blockchain.  And while $BTC and $ETH represent two completely different chains, a coin such as $ZEN is still its own blockchain even though it is a decedent (of sorts) of Bitcoin.  So independent, forked projects can be represented by a coin.

A token on the other hand is a crypto that is born of another coin and uses that coin to exist.  Some blockchains allows tokenization, which means tokens can be made on it.  Those tokens would need the native blockchain coin to be created.  In the cryptoverse, many of the most popular tokens are ultimately built on Ethereum and are noted as being ERC-20 tokens.  Perhaps the most popular of these is Shiba Inu $SHIB.

What Does the Difference Between a Coin and a Token Mean for You?

Maybe not much, but it should.  Often people don’t consider the ramifications of hodling a coin versus a token.  If you’re a meme coin investor, you may just be using social trends as your investing guide.  If you’re a crypto-loyalist, you may just be all-in on a project regardless of whether it is a coin or token.

For me, I absolutely consider whether or not a crypto project is represented by a coin or a token.  Ultimately, a token needs a blockchain to exist, so all birthing fees are in that blockchain’s coin.  Then there could be gas fees for validating a transaction on the network.  When remaining on the token’s contract, this isn’t a big deal.  Oftentimes tokens represent smart contracts that are faster and cheaper to use than the blockchain they are on.  However, the issue can arrive when a significant portion of a portfolio can be impacted when trying to move out of the token, actually needing to hold the underlying coin associated to the blockchain to complete such a transaction.

The most significant difference between a coin and a token is that a crypto coin is a cryptocurrency that operates on its own, dedicated blockchain.  It is its own entity.  A crypto token is a cryptocurrency that requires another blockchain to exist and operate. 

Additionally, for long-term investing we at least consider the point, What is more likely to be around 5 years from now?  A token built on a coin’s blockchain or the coin’s blockchain itself that supports the token and thousands of others much like it?

This isn’t meant to knock tokens in a general sense.  However, it does give us pause when deciding if we want to invest/support a new crypto project.  Being a coin or a token is not an end all / be all for us.  But I can say for myself, my portfolio has been shifting toward a more coin-centric base over the last year or so.