What is a Cryptocurrency Token?

Unlike coins, crypto tokens do not have their own blockchain. Instead, they are created and function on an existing blockchain platform.
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Many organizations and blockchain projects issue tokens as a way to represent assets, services, or utilities. Most crypto tokens are built on Ethereum and follow the ERC-20 standard. However, there are also other token standards, such as ERC-721 for NFTs and ERC-1155 for multi-token assets. In addition, platforms competing with Ethereum, such as Solana and Tron, are also actively developing.
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One of the biggest differences between coins and tokens is that tokens are much easier to create. By using pre-written smart contracts or automated tools, anyone can generate a token and assign it a name.

Examples of cryptocurrency tokens:

• Tether (USDT)
• Chainlink (LINK)
• USD Coin (USDC)
• Wrapped Bitcoin (WBTC)

Differences Between Cryptocurrency Coins and Tokens

Now that we’ve covered the basics, let’s take a closer look at how coins and tokens differ:
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1. Blockchain Network: Coins run on their own independent blockchain, while tokens are built on existing blockchain networks.
2. Use Cases: Coins function primarily as currency and a store of value, whereas tokens can have multiple use cases, including security tokens, stablecoins, NFTs, and asset-backed tokens. Some tokens, such as governance tokens, also grant voting rights in decentralized protocols.
3. Creation Cost: It is much cheaper and easier to create a token than to launch a new coin, which requires developing an entirely new blockchain.
4. Creation Process: Tokens can be created quickly using smart contracts and existing blockchain frameworks, whereas creating a coin involves a complex development process.
5. Migration from Token to Coin: A token can evolve into a coin if its project launches an independent blockchain. For example, Binance Coin (BNB) and Tron (TRX) started as Ethereum-based tokens before migrating to their own networks (Binance Smart Chain and Tron Blockchain).

A simple way to distinguish coins from tokens is to check whether they have their own blockchain network. Hopefully, this lesson helps you use these terms correctly in your future discussions about cryptocurrency!

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