Cryptocurrency coins and tokens are often considered one and the same. However, it would be more correct to say a cryptocurrency coin is a type of cryptocurrency token and, perhaps, more accurate to say that, while they are alike, a cryptocurrency coin is its own thing. At its core, a cryptocurrency coin is tied to an underlying blockchain network, as a native asset of that network. The coin is intended to be used as a form of decentralized digital money to be used over blockchain networks, traded on blockchain networks, and to transfer value without the need for payment processors or related middlemen. Often, when people talk about "cryptocurrency," they refer to cryptocurrency coins, even though cryptocurrency tokens have largely increased in popularity and usage compared to coins.
A cryptocurrency coin is not intended to serve utility functions but operates on its own blockchain, where it acts as a native currency within a specific financial system. In this system, the coin is essentially used as a medium of exchange or a store of value in the network, and the native coin of a network can only be transferred between participants of the particular network.Typically, cryptocurrency coins exhibit the following characteristics:
- Decentralized, or not reliant on a central issuing authority, and reliant on code to manage issuance and transactions
- Built on a blockchain (or related Distributed Ledger Technology [DLT]), allowing participants to enforce the rules of a system in a trustless and automated fashion
Cryptocurrency coins are cryptographically secured and maintain a tamper-resistant record of transactions on the associated blockchain. The ledger and blockchain verify each transaction made using their currency, and this ledger is distributed across the cryptocurrency coin's network.
These coins are issued by the associated blockchain network and often have a hard cap on the number of coins expected to be issued. This can increase the value of the cryptocurrency coin. And new coins can be minted through the consensus mechanism, such as proof-of-work or proof-of-stake networks, each of which has its own mechanism for minting coins.
Similar to minting coins, a network can choose to remove coins from circulation. Depending on the network, this can be done for several reasons. In some cases, it is to retain the value of the currency; in some, it can occur to punish users on a network that are improperly behaving. One common method of removing coins is through a process called "burning," in which coins are sent to a wallet address that only receives coins, which cannot be accessed, and effectively removes them from circulation.
The difference between coins and tokens sounds simple but tends to be tricky in practice. The key distinction is a coin is the native asset of a blockchain, such as Bitcoin or Ethereum, whereas a token is created by a platform or application built on top of an existing blockchain, such as USDT. Coins are generally used for governance (as noted above), transactional fees, and related use cases on the original blockchain, while tokens represent a myriad of real-world use cases, such as gaming, stablecoins, NFTs, and more.
One other category of cryptocurrency coin, which is sometimes considered different from traditional cryptocurrency coins, is the altcoin. These are, in one sense, any coin that is an alternative to Bitcoin, and are essentially created to be currency. Some of these coins are created from hardforks of the Bitcoin blockchain, which technically gives the altcoin a native blockchain and ecosystem but is recognized as a variant of the Bitcoin blockchain. Some of these coins include Namecoin, Litecoin, Dogecoin, and Auroracoin. Due to the nature of some altcoins, they are also called meme coins in some cases.
And are generally considered separate from the native coins on blockchains and protocols such as Ethereum, Ripple, Omni, Bitshares, Solana, or Waves. The coins associated with these blockchains are intended to support their native blockchain and protocol as a native currency and are alternatives to Bitcoin while offering different levels of intention around their use as currency. Typically, these coins are not considered altcoins.
Unlike tokens, cryptocurrency coins can be created to act as money or a decentralized replacement for or alternative to fiat currencies. For example, Bitcoin was created specifically to replace traditional money. And while both coins and tokens can be used for transactions, coins can be used to purchase merchandise and services from both digital and physical organizations.
