What are Crypto Coins and Tokens?

This post explains what cryptocurrency is and the difference between crypto coins and tokens. We also briefly introduce the types of tokens out there and their unique utilities.

Before we deep dive into crypto coins, let’s talk about existing forms of money.

If you think about it, money or coin is simply a medium of exchange. We evolved from an object-to-object exchange mode to today’s complex and highly orchestrated financial system.

When we buy an apple from the market, we’re exchanging the amount of money for the apple’s worth. And we probably exchanged our time and knowledge for that money in the first place – that’s doing our job and getting paid.

In the crypto world, coins and tokens go way beyond that basic functionality. Take Ethereum for an example, ETH can be used to store value, just like how we store money in US dollars or any fiat currency.

ETH also facilitates the blockchain network for transactions and building new applications, deploying contracts, etc.

When most people think of cryptocurrency or coins, they refer to the crypto coins like Bitcoin or Ethereum, which are fungible. George’s 1 US dollar bill is no different than Anna’s, and Jack’s 1 ETH is also the same as May’s.

There’s also stablecoin, designed to stay at a relatively stable price and often pegged to a currency. USDC, for example, is a popular stablecoin designed by Circle, where 1 USDC is pegged to the value of 1 USD. Stablecoins are more useful as a medium of exchange since they are less volatile.

So, Ethereum is a blockchain network and ETH is the native token, does it mean every network has its own coin and every coin needs to have its own network? The answer is no.

You can create your own fungible tokens using the Ethereum blockchain (and others), for example, the meme coin Shiba Inu (SHIB) is a fungible ERC-20 token. ERC-20 (Ethereum Request for Comment 20) is the technical standard to create fungible tokens. There are more than 20,000 crypto coins out there today for different networks and functionality.

Now that we understood what crypto coins and fungible tokens are, let’s talk about crypto tokens, and this is where it gets complicated.

Tokens are not the same as cryptocurrency or coins. There are a variety of tokens to represent different sorts of assets. For example, NFT, non-fungible token, is a form of a token but not a crypto coin.

NFTs are considered value tokens, the type of token that represents anything of value – digital assets such as art, music, game assets, and more. There are also utility tokens that help provide a service, such as the right to access or perform certain actions on a blockchain. There’s LP token which you might receive for providing liquidity for a DeFi (Decentralized Finance) platform.

In short, crypto tokens largely expand the horizon of digital assets and how they can be stored on blockchains for security and privacy.

This is a little farfetched but think about the future possibilities, where your car, house, and any object of value can be stored on blockchain knowing the data is unchangeable. You don’t ever need a notary or keep your titles and deeds in a safe.