There are over 7,000 cryptocurrencies today, and in this post, you have probably come across the word crypto because it is gaining more mainstream popularity by the day, interestingly even.
If you are new to this blockchain and cryptocurrency thing, it will help you know much more about them because they aren’t going anywhere. They might be the fundamental foundation of the world economy.
It will be built soon, but before I get you lost in all this future prediction, understand what cryptocurrency means.
A cryptocurrency is a form of digital currency or virtual money that runs on the technology known as Blockchain rather than by a centralised authority.
Now let’s break that down a bit cryptocurrency is digital money that runs on a decentralised system called the blockchain; it is not controlled by the government like fiat money and can be sent and received using a set of keys called a wallet.
Differences Between Crypto Coin and Crypto Token
Here is the tricky part there are different cryptocurrencies. We have the crypto coin and crypto token. You can easily confuse each other because they are both built using the same system but have different roles in the blockchain ecosystem.
Now let’s take you in for a ride. We will start with the crypto coin.
Crypto Coin
When bitcoin first came out, it set the standard for what it means to be a coin; you shouldn’t be surprised because bitcoin is the grandfather of all other cryptocurrencies today, and that won’t change for as long as we know.
Despite that, there are clear-cut qualities that distinguish crypto coins from tokens which are similar to real-world money. So let’s look into the characteristics of a coin number.
One is that it operates on its blockchain. The blockchain keeps track of all transactions that involve its native crypto coin.
It’s more like this 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. Each transaction is protected by encryption and is accessible by any member of the network in this case.
Bitcoin and Ethereum have their own1 blockchain and native coin with which they transact, namely ether and bitcoin.
Secondly, it can act as money bitcoin was created to replace traditional money. The appeal of transparency and anonymity inspired the creation of other coins, including Ethereum, Binance, Solana, and Litecoin.
This means you can purchase merchandise and services from many major corporations today, such as amazon Microsoft and tesla, using crypto coins.
For instance, bitcoin has recently become an official currency of El Salvador alongside the US dollar isn’t that interesting.
Thirdly it can be mined. You can earn crypto coins in many ways.
Today one is through traditional mining on the proof of work system bitcoin hunters as they are popularly called employ.
This is a method to boost their earnings. The problem with this is that there aren’t that many bitcoins left to mine.
We have 21 million with over 18 million minds, so the process becomes more arduous every day. Another method is proof of stake, a more modern approach to earning coins.
It’s lighter on energy consumption and easier to do Cardano is one of the most significant coins that adopt this system.
We will discuss proof of stake and proof of work later. Let’s recap the characteristics of a coin that operates on its blockchain, like the bitcoin blockchain in the Ethereum blockchain. Two, it can act as money. Three, it can be mined. These three points are what a crypto coin must characterise.
Crypto Token
Blockchain handles crypto coin transactions; then tokens rely on smart contracts are like an array of codes that facilitate trades or payments between users; each blockchain uses its smart contract.
For example, Ethereum user Erc20, Solana user Sol and Avalanche user Avax.
Now let’s get into a token. Unlike coins, tokens do not have their blockchain; instead, they operate on other crypto coins' blockchains, such as Ethereum.
Some of the most commonly known tokens on Ethereum include Shiba Inu, Uniswap, Chainlink, Tether, and many other Stablecoins like the music.
We won’t go too deep into these terminologies, but we will explain token even further.
The first point you should note is that token does not have their blockchain. They operate on another coin’s blockchain, like the Ethereum blockchain.
Another notable difference between tokens and coins is what they represent, while crypto coins are essentially digital versions of money tokens that can stand for assets or deeds.