As a crypto enthusiast, it is important to understand what a token and a coin means as these two words are often erroneously used interchangeably and sometimes do cause confusions especially for those just joining the crypto industry. As a matter of fact, having a full grasp of token economics creates an atmosphere of comprehending crypto dynamics and taking advantages of its full potentials. A crypto user who must have decided to ride in the roller coaster of the crypto industry must also be familiar with popular crypto acronyms.
A cryptocurrency coin is an underlying product of a blockhain technology. The blockchain is completely transparent, and maintained due to consensus mechanisms such as Proof of Work (POW).
Essentially, coins are just information of your balance on the blockchain. A coin represents a unit that work as money that has some value. It is a payment method and typical examples under this are stables coins such as USDT.
A coin is independent and has its own full sovereign blockchain. Initially, not all coins blockchain can allow for integration of other coins or token but with advancing technology of blockchain, we are now having blockchains that allows the creation, modification and integration of other blockchains on their own such as Komodo and Ethereum dApps, smart contracts.
Cryptocurrency coin can be soft/hard forked into another blockchain or its base codes upgraded multiple times as we have had in the cases of Bitcoin, Ethereum, Bitcoincash.
Just as the name implies, a token is just a conventional functionality unit created according to the existing blockchain standards, like ERC-20, ERC-115 of Enjin. In or other words, the company issues a contract on an external blockchain that serves as fuel for in-platform operations.
Tokens are built on existing blockchains and they are not fully independent on their own. They rely on the modes of operation of the blockchain they are adopting and most times have to use the native coin of such blockchain to carry out important functions especially when it comes to sending and receiving transactions. The most common token in the market are ERC-20 tokens built on the Ethereum blockchain.
There are different types of tokens classified based on their functions. We have commodity tokens, protocol tokens, security tokens and utility tokens serving dynamic functions to different crypto users and communities.
With the proper understanding of the differences between a coin and a token, crypto investors or traders will find it easier to know what is being invested or traded. Both coin and token are susceptible to attacks, so security must not be underestimated.
Readers are advised do more research before investing in crypto as this post is purely for informational purpose.