This is similar to comparing investors and traders. All traders, invest, but not all investors, trade. Note that most cryptocurrency users usually own coins and tokens.
When Bitcoin first came out, it set the standard for what it means to be a coin. There are clear qualities that distinguish crypto coins from tokens, which are similar to real-world money.
A coin is defined by the following characteristics:
1. Operates on its blockchain.
Blockchain keeps track of all transactions involving real crypto coins.
When you pay someone with Ethereum, the receipt goes to the Ethereum blockchain. If the same person pays you back later with Bitcoin, the receipt goes to the Bitcoin blockchain. Every transaction is protected by encryption and can be accessed by every member of the network.
2. Act as money.
Bitcoin was created with the sole purpose of replacing traditional money. The paradoxical appeal of transparency and anonymity inspired the creation of other coins, including ETH, NEO,
You can buy merchandise and services from many of today's big companies, such as Amazon, Microsoft, and Tesla, using crypto coins. Bitcoin recently became the official currency of El Salvador alongside the US dollar.
3. Can be mined.
You can get crypto coins in two ways. One of them is through traditional mining on the Proof of Work system. Bitcoin hunters use this method to increase their earnings. The problem is that there are not many Bitcoins left to mine, so the process is becoming more difficult every day.
Another method is Proof of Stake, which is a more modern approach to earning coins. It is lighter on energy consumption and easier to perform. Cardano is one of the largest coins to adopt this system.
Unlike coins, tokens do not have a blockchain. Instead, they operate on other crypto coin blockchains, such as Ethereum. Some of the tokens most commonly seen on Ethereum include BAT, BNT, Tether, and various stablecoins such as USDC.
If crypto coin transactions are handled by blockchain, then tokens rely on smart contracts. They are a series of codes that facilitate trade or payments between users. Each blockchain uses its smart contract. For example, Ethereum uses ERC-20, and NEO uses Nep-5.
When a token is spent, it physically moves from one place to another. A great example of this is NFT (or non-fungible token) trading. They are unique items, so ownership changes have to be handled manually. NFTs often carry only sentimental or artistic value, so in a way, NFTs are similar to utility tokens, except that you cannot require any services.
It differs from coins in that crypto coins do not move; only the account balance changes. When you transfer money from your bank to someone else's bank, your money is not going anywhere. The bank adds to the balances of both accounts and maintains the fees. The same thing happens with blockchain - the balance in your wallet changes, and transactions record it.
Another important difference between tokens and coins is what they represent. While crypto coins are essentially digital versions of money, tokens can represent assets or deeds.
You can buy tokens with coins, but some tokens can carry more value than anything else. For example, company shares. However, since there is usually a limit to where you can spend the token, it doesn't have the liquidity that the coin offers.
Simply put, tokens represent what you have, while coins represent what you can afford.