The Guest and the Landlord
The first difference I can easily explain by the example of real estate. Imagine that the token is someone who rents an apartment while the coin owns it. Yes, this is quite simplistic, but the key idea is that the coin has its network, while the token does not. Instead, the token has a blockchain on the main network.
To give an example, Ethereum is a coin that has its own bespoke network. On the Ethereum network, developers can create tokens with their own blockchains. These token blockchains rely on the master blockchain of Ethereum to operate.
Single-threading and Multitasking
Bitcoin has three main functions:
- Transfer of value.
- A store of value can be swapped for something in the future.
- Unit of account, you can set the price in them.
However, some altcoins have decided to move away from this unitary concept: Ethereum fuels transactions on its native blockchain; staking NEO allows you to earn dividends; holding DASH gives you the right to vote on crucial decisions concerning the DASH blockchain.
Nonetheless, you will see much more diversity if you have a look at the list of the main token types:
- Platform tokens
- Security tokens
- Transactional tokens
- Utility tokens
- Governance tokens
This list is not final because sometimes tokens can play several roles at once. In theory, you can create an NFT, a piece of art, pay for it with a payment token, and protect the deal with a security token. This operation you would not be able to accomplish with Bitcoin.
Long Road or Short Run
If you are a creator, it will be easier to build a token on the Ethereum blockchain. You don’t necessarily have to spend time and go through a long and costly process of developing your own network.
It does not mean that building a bespoke blockchain is pointless. You have to decide which model fits your project best.
So, what you should remember after reading this article:
- Digital coins are native to their blockchain, while tokens are attached to third-party blockchains.
- Mostly, coins duplicate the functions of fiat money, while thanks to tokens, you can confirm transactions, vote for decisions on blockchains, create art objects, and much more
- It takes less effort to create a token, so there are more of them than coins
Congratulations, now no one will confuse you!