In the cryptoverse, ‘digital assets’, ‘coins’ and ‘tokens’ are often used interchangeably when they are different in a number of ways.
Actually, ‘digital assets’ are a broad category and can refer to anything that exists in a digital format. If we think of digital assets in the context of blockchain and crypto, that’s where coins and tokens come in.
A coin is a digital asset native to its blockchain and thus operates on it. Coins are used as a medium of exchange (as payment to buy goods and services) and as a store of value (to preserve purchasing power). They are created by mining, a process which commonly utilises either proof-of-work or proof-of-stake consensus mechanisms.
Coins are decentralized and rely on blockchain code to manage transactions, instead of relying on a central authority. As they operate on their native blockchain, they do not physically move out of the network when there’s a transaction; instead, the blockchain keeps track of transactions and updates the wallet addresses involved.
Examples of coins are bitcoin, the native coin of the Bitcoin blockchain, and ether, the native coin of the Ethereum blockchain. BNB (BNB Chain), Dot (Polkadot) and AVAX (Avalanche) are also common examples.
USDT and USDC, while called ‘stablecoins’, are actually crypto tokens.
A crypto token is created on the blockchain. Tokens utilise the same token standards as the blockchain’s native coin. Importantly, crypto tokens are not limited to being digital currencies like coins - they can also be non-fungible tokens (NFTs) representing both virtual assets and real-life assets.
Tokens are also used as a medium of exchange and can hold value. They have a wide range of functions but are most commonly used for trading, to pay fees, for staking, as rewards and for governance. In fact, just about every decentralized application (DApp) needs at least one token to incentivize users and ensure further development of the project.
As tokens are created by projects that build on top of blockchains, they are managed via smart contracts. Unlike coins, they will physically move from one place to another when a transaction is processed.
An example of a token is ApolloX’s token APX, a BEP-20 token compatible with BNB Chain. APX has the same token standard (BEP-20) as BNB Chain’s native coin BNB. Token standards define the rules for creating and issuing smart contracts on the blockchain.
Similarly, stablecoins USDT and USDC are ERC-20 tokens pegged to the US Dollar and created on the Ethereum blockchain.
The token standard for NFTs often differs from the standard for digital currencies. For example, ApolloX Rockets NFTs are BEP-721 tokens built on BNB Chain.
While crypto coins and tokens have their differences, they are both important in sustaining a crypto ecosystem, especially as mainstream adoption of blockchain technology advances.
Just look at the growing number of traditional brands entering the metaverse. In the coming years, we should expect to see crypto coins and tokens being used as a tie-in to bridge the tangible and non-tangible.
The views expressed in this article are the author's alone and do not necessarily represent the views of ApolloX.
Risk Reminder: Crypto trading carries a risk. All trading activities are done at your discretion and at your own risk. The information here should not be regarded as financial or investment advice from ApolloX. ApolloX will not be liable for any loss that might arise from your use of any financial product.
The ApolloX app is available on Apple Store or Google Play here.
Stay up to date with ApolloX!