Typically, there are two types of cryptocurrencies that exist today; Coins and Tokens. There is a huge confusion regarding the difference between the two, and people are often found using the terms interchangeably. In this section, let’s see how coins differ largely from tokens. Let’s just take a look at the definition of both and see how they actually mean.
In the world of blockchain, what comes closest to mimicking a fiat currency is a Coin. A coin acts just like a fiat currency as it stores value over time, and is typically used for monetary transactions. In fact, they are called coins because they share core characteristics with a physical coin; value, divisibility, fungibility, portability, and controlled supply. The only tangible application of coins is to act as money and can be possessed by anyone.
Tokens, per se, have more specific functions. A token is essentially a part of a blockchain network where it performs various functions like verifying a transaction, paying for a service, participating in a process, and similar project-specific functions.
A very good example of how a token can be used is GAS – a token on NEO Network – which is mandatory to be held by anyone who needs to transact the NEO coin over the network. In simple words, GAS is a token which is needed to execute a transaction over the NEO network. In some blockchains with Proof-of-Authority, a type of consensus model, the degree of authority a selected number of nodes possess, is determined by the number of network tokens they hold.
Notably, tokens are created by using cryptographic token standards defined by coin platforms and are thus dependent on coins to exist. For example – GAS token uses NEP-5 token standard defined by NEO, whereas tokens like Binance Coin, OmiseGO, Aeternity and more, use ERC-20 token standard created by Ethereum.
Something to be noted is that a token can be purchased with a coin, but not the other way around. Binance Coin, which is actually a token on Binance exchange allows users registered on the exchange to purchase other cryptocurrencies, including coins. Hence, it wouldn’t be wrong to say Binance Coin is actually a misnomer.