The Difference between Coins & Tokens

OR why Tokens are like Fresh Fruit

If you own some cryptocurrency or are looking to get involved with cryptocurrency, then let me start this with a welcoming embrace 🤗. If you do not fall into this category (unfortunately) this article probably isn’t for you yet.

Being an active participant of the cryptoverse, you likely have stumbled upon the shmorgusboard of crypto assets listed on CoinMarketCap. Right there, smacked on its front page, are 100 of the Worlds “finest” cryptocurrency projects.

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Each project cultivating communities and grabbing as much cyber-economic real-estate as possible is attempting at building the future of social existence.

Surely you have heard of granddaddy Bitcoin and a few of its digital companions Ethereum, Doge, Ripple, etc. Maybe, you have even heard about the now famed ICO hype of 2017 that brought with it, projects EOS, Tron, Enjin and a few thousand more;

But have you ever stopped to ask:

Why do some of these projects refer to their crypto-assets as Coin’s ; while other projects refer to their crypto-assets as Tokens?

Cryptocurrencies generally come in two flavors: Coins and Tokens. Coins are the native asset that belongs to the blockchain within which they operate. Every coin has its own blockchain, while a Blockchain can support many Tokens. Aside from some novelties that differentiate one token from another (like the contract names 😂), approximately 80% of all tokens are indistinguishable from one another.

Note: not every blockchain can support token creation on top of it[Bitcoin Blockchain cannot {yet}].

To visualize this from a more technical standpoint would be to say that COINS are built into the blockchain and are therefore considered a Layer 1 technology.
Meanwhile, Tokens are built on top of the blockchain and therefore are regarded as Layer 2 technology.

Within a token contract, there is a need for a function to exist known as allowspend. The reason that a token must allowspend is because when a token contract is created the machine logic registers that the contract creator is the sole owner of the token/asset. With the allowspend function, the machine logic understands that these assets are allowed to be used by the wallet where it resides.

COINS

When we think about Coins we are actually thinking about assets like Bitcoin, Ethereum, Stellar, Monero, ZCASH, and a few others.

At a very high level, Coins represent ownership of the limited “cyber-estate” that is taken up by that Coin’s underlying chain. One Bitcoin represents the proportionate space of itself to all of the Bitcoins that exist (and will exist). If the BTC Blockchain will take up X space then 1 Bitcoin represents (1/X) space, a very limited amount.

Due to raw design, Coins are limited in their functionality. They are intended to act strictly as a form of money by being a:
 — a unit of account
 — a store of value
 — a medium of exchange
 — Ownership (direct)

Coins are intended to be general purpose proofs of value

Digging deeper, we can understand that Coins are the economic force that drives decentralization, which in turn drives digital economic growth. Coins do not have (or should not have) a single point of failure, thereby adding trust and security with each syncing node.

TOKENS

On the other end of the spectrum, we have tokens such as Augur(REP). ChainLink(LINK), Basic Attention Token(BAT), and so on.

Being built on top of rather than into the actual blockchains, Tokens by their nature are actually more flexible than coins and have more utility and are also more likely to have a serious security flaw (centralization).

Tokens, just like coins, are a unit of accounting & a medium of exchange however, it is difficult to refer to tokens as a store of value. The actual intrinsic value of a token is tied to the utility it brings to the token holder.

Typically tokens offer:
 — Access to a protocol
 — Regulatory Headache
 — Ownership (in the form of “RIGHT TO SPEND”)

The level of ownership offered by tokens is similar to the ownership of fresh produce…
A Token is like fresh fruit.
A mango.

When you buy a mango (token) you are the sole owner of it and may do with it as you please… However, the mango’s(tokens) livelihood is governed by what is known as biological life(“the right to spend tokens” that must be specified in the actual token contract code). At some point in your ownership of the mango, you must UTILIZE it, if you do not then the mango will rot and you will lose the value that you initially invested in it because you are now forced to throw it out (sell a token -50%)

Furthermore:
Tokens themselves intend to cater to specific uses:

  • Security tokens
  • Asset Tokens
  • Utility Tokens
  • Non-fungible Tokens
  • Currency Tokens
  • Reward Tokens

Each type of token has its own framework within which it operates. That framework then governs the extent to which a token can build value for itself.

To Wrap Things Up

Tokens can be thought of as Companies and Coins can be thought of as the Governments which host the companies.

Realistically speaking,
Tokens are becoming the future Googles and Amazons of the world… meanwhile, Coins are quickly becoming the digital governments & political systems that cater to global digital economies.

There is a macro trend drawing itself out in the crypto-verse.
Tokens that become successful tend to switch over to their own blockchains and become coins…

What token is going to become a coin next?

https://medium.com/media/c414393147498cd3b3953f2dfa8933f6/href

🤓 would you be so lovely as to throw in a few claps 🤓

https://medium.com/media/0707f5c806284d01a4a13c7b13a91ce3/href


The Difference between Coins & Tokens was originally published in Data Driven Investor on Medium, where people are continuing the conversation by highlighting and responding to this story.