Crypto Coins and Tokens: Their Use-Cases Explained

Getting into crypto can be pretty overwhelming at first. You’ll probably catch yourself wondering things like, “Okay, but what is cryptocurrency, really?” or “How do Bitcoin and Ethereum even work?” Then comes the next wave of curiosity — “Are there other kinds of digital money out there?” and “Wait, what’s the actual difference between coins and tokens?”

We’ll examine important queries regarding Bitcoin coins and tokens in this post.

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Let’s first examine what cryptocurrency tokens and coins are.

Crypto Coins and Tokens: What Are They?

Crypto coins and tokens are digital assets. They are mainly used for money transfers or as a store of value. They are both currencies using blockchain technology at their base. However, the parallels stop there for the most part. In fact, the tech behind coins and tokens is quite different.

What Are Crypto Coins?

Any cryptocurrency that runs on its own independent blockchain — like Bitcoin — is known as a coin. In simple terms, if a digital currency has its own blockchain network, it’s considered a coin. You use this native coin to pay transaction fees and join the network. Participants get this native coin as a reward for securing the network.

What Are Crypto Coins For?

This coin serves as a censorship-resistant store of value. It also acts as a medium of exchange. Plus, it has a secure, fixed monetary policy. Bitcoin acts as a store of value. It’s often called “digital gold” because it’s secure and very decentralized.

Yet, people have created other coins for different reasons.

A blockchain can securely transfer the value of a traditional (fiat) currency through the use of stablecoins. A great example is USDT — a type of cryptocurrency designed to mirror the value of the U.S. dollar (USD).

What Are Crypto Tokens?

Now that we’ve covered native coins, let’s take a closer look at crypto tokens.

Tokens are currency or assets associated with a particular blockchain. They are not, however, the native coin of the network. If it seems confusing, let’s examine how it actually operates.

Ethereum stands as the world’s second most widely used blockchain platform. It supports more tokens than any other blockchain to date. The Ethereum network uses Ether as its main coin. It also supports many other currencies that follow the ERC standard. There are many currencies and assets on the Ethereum network besides Ether. We call each of these assets a token.

But tokens aren’t for the Ethereum network. Today, several blockchains offer support for both fungible and non-fungible tokens. Some of these are Solana, Cardano, and Tezos.

What Are Crypto Tokens For?

Well, like crypto coins, there are many use cases for crypto tokens. Tokens allow users to pay for services and fees in blockchain apps and platforms. But there’s a bit more to it than that.

Blockchain Apps Driven By Smart Contracts

Users can transfer digital assets through smart contracts when they meet certain conditions. This allows tokens to have rules built in. Tokens can have rules that govern how they share, move, or link to other tokens or protocols. This core feature allows tokens to have extra abilities that coins lacked. Smart contracts can give tokens unique burn functions or conditions. This creates a special experience for the holders. To sum up, smart contracts and the tokens they generate brought dapps and blockchain apps to life.

DeFi

Uniswap is a prime example. It is an entirely automated and decentralized cryptocurrency exchange. Its native coin, UNI, is an ERC-20 that is compatible with the Ethereum network. On Uniswap, fees and services are payable in UNI. 

It’s not about exchanges. Tokens create opportunities for more complex platforms. They allow for swapping, lending, and crypto derivatives. Today, it’s even possible to purchase blockchain tokens that represent real-world assets. Yes—that’s right. Crypto tokens can also stand for valuable real-world assets, such as gold and silver. These types of tokens are the tip of the iceberg.

Understanding Coins Vs Tokens

Crypto coins and tokens serve different purposes. They both can act as a way to exchange value, but each has unique use cases. When you analyze them, you’ll typically consider similar metrics. These are their use, active holders, value, allocation, market cap, and others. But that’s largely where the similarities end.

Coins are vital for securing a blockchain. They also reward participants for acting properly. Coins are usually more stable and serious in purpose compared to tokens—but of course, there are exceptions. When analyzing coins, it’s smart to check how the network works. Focus on its consensus mechanism. This shows you where the native coin is going. It also reveals if the participant handling transactions is doing it well.

Tokens serve a clear purpose for users. They help the network grow in importance and attract more users. While that may sound trivial compared to security, each of these assets plays a valuable role.

Still, tokens can’t exist without the foundational presence of coins. These two assets team up to provide a better decentralized experience for everyone. To send digital assets directly, you must use the native coin of a blockchain network. You will then need to use tokens to enjoy interoperability. In short, the decision of whether to employ coins or tokens will depend on the blockchain you select and your specific scenarios.

Crypto Coins and Tokens Vs Traditional Finance

Cryptocurrencies may seem scary, but blockchain lets you be your own bank. Tokens have changed cryptocurrencies. They now work not only to store or transfer value. They also act as financial tools, like derivatives and claims on real assets.

What truly separates these assets from traditional finance is the idea of ownership. Imagine if the company or bank you trust with your money suddenly shut down. Your funds could be at risk.