Crypto Coin vs Token (Differences + Examples)

Summary

This video explains the difference between coins and tokens in cryptocurrency using the analogy of owning versus renting a car. Coins operate on their own blockchains, like owning a car, while tokens use existing blockchains, similar to renting a car. The video also covers various types of tokens, including platform, security, transactional, utility, and governance tokens, each with distinct purposes and use cases. Examples like Ethereum, Basic Attention Token, and Crypto.com illustrate how tokens can function within larger blockchain ecosystems, making it easier for users to understand the underlying mechanics of cryptocurrency.

Takeaways

• 😀 Coins operate on their own blockchain, while tokens rely on the infrastructure of other coins' blockchains, like Ethereum.
• 🚗 The analogy of owning a car vs. renting a car helps explain the difference between coins (ownership) and tokens (renting).
• 🛠️ A coin validates transactions and stores value on its own blockchain, while a token simply uses the blockchain of another coin for its operations.
• 💡 Ethereum is a key example of a coin that powers various tokens through its blockchain, such as Basic Attention Token (BAT).
• 🔗 Tokens are easier to create because they don’t require building a new blockchain from scratch, making them ideal for projects focused on specific applications.
• 🔄 Some tokens, like Crypto.com’s, can transition into coins if their projects grow large enough to need their own blockchain and infrastructure.
• 💎 Tokens can represent real-world assets, like gold, as security tokens, offering a safer, digital form of ownership.
• 💸 Transactional tokens, like XDAI, are designed for fast, low-cost transactions, ideal for micro-payments and everyday purchases.
• 🔑 Utility tokens, such as BAT, provide access to specific services, like advertising on the Brave browser, adding tangible value beyond just being held.
• 📊 Governance tokens allow holders to vote on platform changes and decisions, giving them more control over a platform's future, such as with Uniswap's governance system.

Q & A

What is the difference between a coin and a token in blockchain technology?

A coin operates on its own blockchain, like Bitcoin or Ethereum, and manages its own transactions and data. A token, on the other hand, is created on an existing blockchain (like Ethereum) and uses that blockchain's infrastructure for validation and security.

Why might someone choose to use a token instead of a coin?

Using a token can be more practical and cost-effective because it leverages an existing blockchain's infrastructure, saving developers the effort of building and maintaining their own blockchain.

What is an example of a token built on the Ethereum blockchain?

The Basic Attention Token (BAT) is an example of an ERC-20 token built on the Ethereum blockchain. It is used within the Brave browser to reward creators and replace traditional advertisements.

Can tokens be converted into coins?

No, tokens cannot be directly converted into coins. However, a new coin can be created, and a bridge can be built to allow users to swap their tokens for the new coin.

What is a 'platform token' and how is it used?

A platform token is a token created to support a decentralized application (dApp) on a blockchain. An example is the Uniswap token, which is used within the Uniswap exchange platform to facilitate trades and provide governance rights.

What is the purpose of a 'security token'?

A security token represents ownership of an underlying asset, such as gold or real estate. It provides a digital way to own and trade assets without having to physically hold them.

How do 'transactional tokens' work?

Transactional tokens are used for quick, low-fee transactions. For example, xDai is pegged to the US dollar and can be used for everyday purchases, with extremely low transaction fees compared to traditional payment methods like PayPal or bank transfers.

What is a 'utility token'?

A utility token has a specific use within a platform or service. For example, Basic Attention Token (BAT) is used for advertising within the Brave browser. Utility tokens have value because they can be used for a particular function within the ecosystem.

What are 'governance tokens' and how do they work?

Governance tokens give holders the right to vote on decisions that affect the platform. For example, in the Uniswap platform, token holders can vote on decisions like adjusting transaction fees. The more tokens a user holds, the more voting power they have.

Why might a project start with a token and later create a coin?

A project may start with a token if creating a new blockchain is too complex or costly. As the project grows and gains popularity, they may decide to create their own blockchain (and thus their own coin) to have more control over their infrastructure and transactions. An example is Crypto.com, which started with a token and later launched its own coin.