Did you know the difference between a coin and a token?

During my early crypto days, I used to wonder what the difference was. There was also a misunderstanding happened. We will be able to see many people confuse these two terminologies. I thought of sharing my knowledge on what the difference is all about. When all these cryptocurrencies started, they all started as an independent blockchain. BTC, LTC, MONERO, XRP, etc are some of the examples of the same.

Gradually when the cryptocurrencies started getting popular and when people started understanding the concepts better, more similar coins came to the market. Some of them were very successful and some coins did not even cross a month. There were also a few coins that were a money grab. The initiator would create a FOMO and lots of hopes and investments would pour in and one fine day the initiator will run away with all the money. This has happened several times in the past and we cannot do much about it because it is a small risk we have in this decentralized world.

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Now let's get back to the topic and differentiate Coin and Token. Even though both are cryptocurrencies, they have their own differences.

What is a coin?

A coin is an independent cryptocurrency. Usually, it is the main currency of an independent blockchain. The example coins I quoted above are all something that falls under these categories. BTC, LTC, MONERO, XRP, Hive, etc are all coins. They have their own independent blockchain. Even though BTC was the first cryptocurrency to get started, some projects forked out of BTC and created their own projects and some projects understood the concept of BTC and created their own blockchain network.

Hive is one such blockchain that was created in a unique way where there is no concept of mining and there are no transaction fees involved. So many improvements were made to the initial concept that was there in BTC and that's why Hive is so successful here. Out of most of the top cryptocurrencies we see in Coingecko, only a few are coins and the remaining are all tokens.

What is a token?

Tokens are also cryptocurrencies. They are usually sub coins inside a blockchain. For example, if we create another cryptocurrency inside a parent cryptocurrency, the newly created cryptocurrency will be called a token. Most of the projects that are slowly getting bigger in the crypto world are all tokens with a supply and what they call tokenomics.

Ethereum is one of the most popular blockchains where people easily create tokens. Now we have so many similar platforms that help us in creating our own tokens for the projects. As many blockchains support creating tokens, there is a high possibility for linking tokens across multiple chains and having a cross-chain bridge.

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There is also a small risk involved when dealing with tokens. Most of the tokens are out of a contract on the respective chains. When there is a contract, there will also be contract owners and there is a high risk of centralization here. This is considered as big when compared to Coins. There are some chains that support decentralized token creation and tokenomics too but I'm not sure how far those can be decentralized. A good example of this is the token creation capability on Hive Engine. The project owners can either be individuals or a group of individuals. If it is an individual owner and if the owner dies or decides to leave the chain, the project might function to some extent but it can be a big risk for the investors.

Hope the article was helpful. My last would on this topic would be to always read and understand what you are dealing with. Anybody can create a token but coins are not that easy to create and maintain. But whichever be the case, invest only after doing your research.

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