June 14, 2021

Token or coin - which is better?

Token or coin - which is better?

Despite the fact that the token and coin are components of cryptocurrencies based on blockchain technology, their destination is different. The difference becomes significant when choosing a subject of investment or a method of building a cryptocurrency.

What is a coin?

In the traditional world, we define a coin asa piece of metal with an official stamp issued by the government and used as currency. As for cryptocurrencies, a coin is a digital currency that runs on its own blockchain, without a physical equivalent in the real world.

In turn, the blockchain works as a basedata that is transferred from one node to another. The data, however, represents records of the number of units of currency that each address contains. The conditions for data transfer and how nodes communicate with each other are determined by a set of rules - a protocol.

Thanks to the ability to develop your ownprotocol, the coin receives the highest level of independence and flexibility. The company or group that founded it can make decisions on all aspects, such as consensus mechanism, fees, or transaction mechanism.

The original cryptocurrency, Bitcoin, containscharacteristics of legal currency, which is a unit of account, a means of preserving value and a medium of exchange. The coins followed by Bitcoin are called altcoins. There are more than a thousand altcoins, including Ethereum, XRP, Litecoin, EOS.

What is a token?

In the cryptocurrency market, the token is digitalPresentation of asset balance. The token is built on the basis of an existing blockchain, so it uses a predefined protocol and is determined by a smart contract. In addition, they can acquire value due to their purpose.

Let's look at a token using the Bananacoin project as an example.

So, several Russian entrepreneursdeveloped the Ethereum token and named it Bananacoin. They were about to raise funds to expand their banana farm. Each Bananacoin token was set to store the cost of one kilogram of the export price of bananas.

Instead of receiving 1 kg of bananas for each token purchased, buyers received Bananacoin, which represented the same value.

The token uses an existing coin, so it is subject to any applications and restrictions on the network.

You can make your own cryptocurrency in less than half an hour through a smart contract. Here are some examples of tokens: Tether, UNUS SED LEO, Huobi Token.

Difference between coin and token

Miscellaneous algorithms

There is a clear difference between coins and tokens in relation to the algorithm:

  • The coin is based on its own blockchain;
  • The token is based on creating a smart contract on top of an existing blockchain.
  • Various payment systems

    During trading, a coin can be sold on its own without any commission. But when you trade a token, you have to pay for the network on which it is based.

    On the Ethereum platform, each operation requiresIn this way, gas is used to distribute the resources of the EVM (Ethereum virtual machine) and follow the instructions contained in the smart contracts.

    Vulnerability to 51% Attacks

    One of the main goals of cryptocurrency is to create a more secure financial system without a single point of failure. Therefore, the strength of the network lies in the significant difference between the coin and the token.

    A coin can be attacked at 51%, especially in the early stages when a network is just forming. However, since it is built on an existing network, the token is unlikely to be the target of such an attack.

    Now the difference between a coin and a token should be completely obvious. However, coins and tokens do not replace each other, but serve different purposes. Each of them is better in the respective context.

    Crypto coins offer the highest degree of independence and flexibility. On the other hand, they are expensive to create, and they need large communities to support and adopt them.