What Are Coins?

The concept behind decentralized digital payments is built on a distributed ledger that records transactions using a native cryptographic asset called a coin. These coins are the sole form of exchange recognized by their respective blockchains. For instance, the Bitcoin blockchain exclusively supports Bitcoin (BTC), while the Ethereum blockchain only accepts Ether (ETH).

Each coin reflects the technological design and financial model of its blockchain. Coins are generated through the processes of Proof-of-Work (PoW) or Proof-of-Stake (PoS), depending on the blockchain. In PoW, miners validate transactions, while in PoS, validators are chosen based on the amount of crypto they hold.

Several new blockchains are exploring innovative consensus mechanisms that can operate independently or in conjunction with PoW and PoS, offering enhanced functionality.

A notable characteristic of most cryptocurrencies is their fixed supply, designed to create scarcity and increase value. For example, Bitcoin has a maximum supply of 21 million coins, meaning no more will be mined once this cap is reached.

How Are Coins Used?

Bitcoin was originally created as an alternative to traditional fiat currencies. Similar to paper money, it can be used for day-to-day transactions. Coins can be used in various ways, such as:

Some cryptocurrencies, like DASH, even enable holders to participate in governance decisions via Decentralized Autonomous Organizations (DAOs).

Popular Coins in the Market

What Are Tokens?

Tokens, in contrast to coins, are digital assets that are built on top of pre-existing blockchains. For instance, Uniswap’s native token, UNI, is based on the Ethereum blockchain. These tokens don’t have their own blockchains and rely on the infrastructure of other blockchains to function.

Tokens are created using blockchain protocols like Ethereum’s ERC-20 standard, and they can represent a variety of assets, including shares in a DAO, digital products, or even physical assets. Unlike coins, tokens cannot be mined; they are issued by the creators of a specific project and distributed to users. Transactions involving tokens incur fees in the blockchain’s native coin.

What Are Tokens Used For?

Tokens serve several purposes within the ecosystems of the projects they belong to:

Popular Crypto Tokens

Key Differences Between Coins and Tokens

Key differences of coins and tokens.

Both coins and tokens operate on blockchain networks and can be transferred between users, but they differ significantly:

Here’s a simple comparison:

Are Stablecoins Coins or Tokens?

Image showing how USDC works.

Stablecoins are tied to specific assets like fiat currencies or commodities. Most stablecoins are ERC-20 tokens, but they are often referred to as “coins” because their primary purpose is as a medium of exchange. For example, USD Coin (USDC) is an ERC-20 token that is backed by the US dollar and maintains a stable value of 1 USD.