We often read and hear people (including some successful traders) to use terms cryptocurrencies, coins and tokens towards the same assets. Looks like nobody feels the difference between these words but there ARE differences, and very significant ones. And these differences should be considered by everyone who is going to make money with cryptocurrency trading or to invest in ICO projects, as it is needed to understand White Papers and to evaluate projects before investing.
We strongly recommend you to read this short but comprehensive article, as it will allow to understand the crypto market much better!
Coins: Main Features
The №1 example of cryptocurrency coins is Bitcoin, which was created to replace traditional payment method: fiat money. Its main advantages are speed, low transaction costs and safety. As everyone knows, Bitcoin has a number of competitors with same goals but different characteristics. For example, Monero provides users with a high level of anonymity. IOTA allows to exchange data between huge number of customers and to conduct micro-payments. Ethereum helps to realize smart-contracts and decentralized applications (Dapps) for different trading operations.
So, the main characteristics of any coin are being defined by its main function: to serve as a payment method. Among these characteristics are:
Uniformity
Divisibility any coin can divide into parts
Usability any coin can be used as a payment method. The amount of systems accepting different coins varies, but goal of any cryptocurrency project is to increase the number of its partners.
Limited emission (with rare exceptions).
Besides, every coin:
Circulates within its own blockchain system. That means, that every networks user can receive, send or mine these coins.
Is protected by a unique algorithm.
Has its unique mining and verification system, which usually uses PoW or PoS protocols (but there are other protocols as well).
Functions as a payment method. Within its network any coin can exchanged to fiat money, to trade on exchanges, to be used for purchasing.
Tokens: Main Features
Tokens can also be used for exchanging for goods and services. But they have other functions beside that, which differ tokens from each other.
Tokens are being created on the basis of already existing cryptocurrency platforms. Purchasing tokens for coins circulating on the exchange, investors support separate businesses, which are aimed at the realization of specific goals. After tokens can be used as a mean of interaction between investors and companies. As the result companies receive new incentives for further growth, as one of the important ways to use tokens is to pay with them for companys services. Investors, in their turn, can exchange tokens for services they need and to make profit with the growth of tokens rate.
Thus, the main characteristics of tokens are the following:
Tokens dont have their own platform as they are being produced on existing network. For example, many tokens exist within Ethereums ecosystem. In other words, tokens are applications which are based on specific operational systems (the role of operational system is being played by a blockchain with its own cryptocurrency).
Tokens usually dont have their own value, but they represent the value of applications they circulate within.
Storage and exchanging of tokens are being conducted with a help of private registers, supported by teams or companies. For example, BurgerKing Russia company has released Whoppercoin tokens. Customers of Whopper burgers receive 1 token for any ruble they pay, and further 1700 tokens can be exchanged for 1 Whopper.
Unlike coins, tokens are usually not limited in quantity.
Tokens allow to provide specific functions besides payments. There are tokens which are being used for working with smart-contracts, for placing advertising, for supporting start-ups, etc. Some tokens play roles of virtual financial assets, some tokens are companys shares.
Tokens used for ICO campaigns function within blockchain systems like Ethereum, Waves, Neo or Qtum. Therefore, they can be purchased mainly for the currency circulating within these systems.
The funny thing is that the term Initial Coin Offering is not about coins sale, but about tokens sale. Well, even the crypto market has its puns.
And let's take a deeper look at the last one term the term of Cryptocurrency
The word cryptocurrency describes the type of digital currency, which is being created and developed by cryptographic methods. There are 3 main characteristic which any cryptocurrency should possess: it should serve as a method of exchange, it should be a payment unit, and it should have a price.
Therefore, you can use the term cryptocurrency towards all the coins but not towards all the tokens. For example, so-called utility-tokens, which are being used only as equivalent to some services, are not a cryptocurrency, but rather a key to services provided by different projects.
Conclusion
Lets make short summaries to pack all the info into your mind:
1. Coin is a cryptocurrency created on a basis of its own blockchain and designed as a payment method.
2. Tokens are being created on a basis of specific platform like Ethereum, Waves, etc. Usually tokens have much more functions than coins.