What's the Difference Between Coins and Tokens in the Crypto Space?

In the crypto space, you'll come across two main types of digital assets: coins and tokens. They might seem similar at first glance, but they actually serve different purposes. So, what sets them apart?

I got the idea for this article while chatting with a friend in another island over WhatsApp. I thought it would be fun to share thoughts about the crypto scene since he had talked a lot about Bitcoin and other coins when he had visited me.

During our late conversation on WA, I noticed that there were a few concepts my friend didn’t quite grasp. And honestly, if you scroll through social media, you’ll see that many people share the same confusion.

Just like how football fans sometimes mix up terms like naturalization and descent players, crypto enthusiasts can also struggle with the difference between coins and tokens. It’s surprising how many people can’t tell them apart.

So, what’s the difference? Some might wonder.

At first, they might look the same, especially if you’re just in it for the profits. Who cares if it’s a token or a coin as long as it’s making money, right? Whether it’s a token, a coin, or even a meme coin, the main goal is to see those profits soar.

However, for anyone looking to really dive into the crypto world, it’s important to get these basics right. They are, in fact, two distinct entities.

Coins and Blockchains

The biggest difference between these two digital assets is how they relate to a blockchain. Coins are the main cryptocurrency on a blockchain, while tokens typically operate on an existing network or ecosystem and doesn't have its own one.

A coin in the crypto world acts as the primary unit of value, setting the standard for various transactions, including the fees associated with them.

Each coin is specific to its own blockchain, meaning that if you have one coin, it won’t work on another blockchain. For instance, Bitcoin operates with BTC, while Ethereum and Solana use ETH and SOL, respectively.

You can only use SOL for transactions within the Solana network. The same goes for ETH and BTC; they’re limited to their own blockchains.

To put it in everyday terms, think of coins like a country’s currency. In Indonesia, for example, the official currency is the Rupiah (IDR), and the government mandates that all transactions within the country must be conducted in IDR.

So, if someone from abroad like our national football team's naturalized players Jay Idzes or Thom Haye comes to Indonesia with Euros, they won’t be able to use them at places like Alfamart, a well-known local minimart chain, or Holland Bakery without first exchanging them for Rupiah.

On the flip side, if you travel to Malaysia, IDR won’t hold any value there. We’ll need to convert it to Malaysian Ringgit (RM) to buy souvenirs or grab a bite at the street food stalls in Bukit Bintang.

This is similar to how coins function in the crypto space. You can’t use SOL for transactions in the Ethereum or Bitcoin networks, and the same applies in reverse.

When it comes to their usage, coins can be categorized into at least four different types.

- Native Coins are the primary cryptocurrencies tied to a specific blockchain. They play a crucial role in their respective ecosystems. For instance, you have SOL on Solana, ETH on Ethereum, and BTC on Bitcoin.

- Forked Coins are those that branch off from the original blockchain but still operate within it. Examples include Ethereum Classic (ETC), Bitcoin Cash (BCH), and Bitcoin SV (BSV).

- Wrapped Coins represent a network's coins or digital assets on another blockchain. They enable users to tap into different ecosystems and liquidity options. Some examples are Wrapped Ether (WETH) and Wrapped Bitcoin (WBTC).

- Stablecoins are quite similar to wrapped coins, but their value is pegged to other assets like gold or fiat currencies. They aim to provide stability and minimize price fluctuations in the crypto market. USD Coin (USDC) and USD Tether (USDT) are both pegged to the US dollar.

Now, let’s talk about tokens. Unlike coins, tokens aren’t the main currency of a blockchain and serve different purposes in the crypto space.

While coins are limited to their original blockchain, tokens can move across various networks without needing to be converted. This flexibility allows token holders to use them in multiple ecosystems.

If coins act as currency and secure the ecosystem, tokens have a wider range of uses. They can represent ownership, serve as utility tools, or even provide voting rights within a community.

However, tokens are more specialized in their application. You can only use a token in places that accept it, typically in apps or services where the token serves as a form of exchange.

Even if two services or applications are on the same blockchain, like Solana, they often don’t recognize each other’s tokens. So, you’ll need to swap those tokens for SOL or stablecoins like USDC first.

Think of it like a Disneyland card—it’s a token that only works in Disneyland. You can’t use that balance at other amusement parks.

If you want to go to Legoland, you’ll have to get a Legoland card to enjoy the rides there. The balance on your Disneyland card won’t help you at all in Legoland.

Another example is Shopee coins, which are specific to the Shopee marketplace. You can use them for shopping or paying bills on Shopee, but they won’t buy you ice cream at Walmart.

Now, let’s break down the different types of tokens based on what they do:

- Utility Tokens give you access to specific services or features within a blockchain or dApp. Examples include ME tokens in Magic Eden, LINK in Chainlink, and UNI in Uniswap.

- Governance Tokens let users participate in the decision-making of a service or community. For instance, JUP tokens give members of the Jupiter community voting rights in decisions made by the decentralized exchange (DEX).

- Security Tokens are digital representations of securities, like shares or bonds, and are regulated just like traditional securities. They represent ownership of real-world assets, with POLY (Polymath) being a notable player in this area, allowing for the tokenization of physical assets.

- Non-fungible Tokens (NFTs) represent unique digital items, like artwork or collectibles. These tokens aren’t interchangeable with others, making them one-of-a-kind.

Pudgy Penguins, the top NFT in the crypto scene, has just launched its own token called PENGU. This token isn't just a cool addition; it's a key utility for the community and can also be traded on decentralized exchanges like Jupiter.

Basically, a token can evolve to be more inclusive. What starts as a community-specific token can expand and even bridge different ecosystems.

Some tokens eventually become coins. For example, BNB, or Binance Coin, began as an ERC-20 token on the Ethereum blockchain.

Binance is now the largest cryptocurrency exchange globally. When they created their own ecosystem, Binance Smart Chain, BNB became the primary coin within that space.

So, that’s the gist of how coins and tokens differ in the crypto world, at least from my perspective. If anyone has more insights or corrections, feel free to drop them in the comments!