Ask 10 different cryptocurrency experts to describe the difference between a coin and a token and you are likely to get 10 different answers.
This is because the cryptocurrency community uses the terms “coin” and “token” interchangeably, all the time.
The fact is that both coins and tokens fall under the umbrella term of cryptocurrencies…
But they are slightly different.
Are Coins and Tokens the Same?
This is a fair question,1 but the answer is no.
Coins and tokens are subtly different by their layers of abstraction away from the source of underlying value.
While all conventional, physical and cryptographic coins and tokens are abstractions of monetary value, tokens (and “colored coins”2) are a layer of abstraction deeper than a coin.
Take the Coin or Token Quiz!
Test your cryptocurrency knowledge! See if you can properly classify these popular crypto-terms as coins, tokens, neither or both.
The Simplest Way to Think About the Difference Between a Coin and a Token:
Perhaps the simplest way to think about the difference between a coin and a token is provided by CoinMarketCap on their FAQ page.
CoinMarketCap separates coins and tokens using the following logic:
“A Coin is a cryptocurrency that can operate independently. A Token is a cryptocurrency that depends on another cryptocurrency as a platform to operate. Check out the crypto tokens listings to view a list of tokens and their respective platforms.”
The answers to the “Coin or Token” quiz above uses this basic CoinMarketCap criteria…
CoinMarketCap’s Token criterion requires that a token depend on another platform to operate. For example, Ethereum is a platform that enables other cryptocurrencies to be built, and run, on top of it. (Other platforms upon which new cryptocurrencies can be built include Omni, Nxt, Waves, Neo and Counterparty.)
EOS is a token built on top of Ethereum… Ardor is a token built on top of Nxt, etc.
But CoinMarketCap’s classification of coins and tokens, while helpful, is probably oversimplified. Some of CoinMarketCap’s classifications conflict with the white papers of the underlying coins and tokens themselves.
For example, CoinMarketCap classifies “Waves” as a coin, but Waves refers to itself as a token in its whitepaper.
A More Nuanced Approach to the Differences Between a Coin and a Token:
A more nuanced approach to defining the differences between a coin and a token may be to use CoinMarketCap’s criteria and also add another criteria.
- A “coin” exists independently using its own native blockchain platform AND is used solely as a store of monetary value, not other application functionality.
- Ripple (XRP)
- Bitcoin Cash
- A “token” exists on top of another blockchain platform AND may be used as a store of monetary value, as well as other application functionality.
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