If so, don’t feel bad. You are not alone. Terminology being thrown around with the evolution of new technology has many confused. As I talk to people about blockchain technologies, I get the questions. Are coins, tokens, and cryptocurrencies the same thing? Despite the confusion it is becoming evident to many that there is a way to transfer assets to each other securely, reliably, publicly, irreversibly and globally without the need for a central authority.
“Trust” is moving toward distributed networks of machines that no one person, group, corporation or government entity owns. Networks which have rock solid data integrity, zero downtime and financial incentives for those who participate.
What are coins?
A coin is a relatively simple type of token. It is a means of payment. A coin acts as a form of money, storing value over time and enabling businesses to account and pay for services.
What are tokens?
Tokens are more sophisticated than a coin. And, not all tokens are the same. Token categories include:
- Asset tokens: Represent ownership of an asset such as a company, venture capital fund, expensive piece of art, etc. An example is BCAP which represents ownership in Blockchain Capital’s third fund.
- Usage tokens: These are also known as “Use”, “Protocol”, “Intrinsic”, or “Native” tokens used as transaction fees to write to a blockchain. Most common example is Bitcoin.
- Work tokens: These give owners permission to contribute, govern, and/or “do work” on a blockchain. An example is Maker (MKR), which gives owners the ability to govern an organization that manages the stability of an underlying coin (DAI).
- Hybrid tokens: These have properties of two or more of the above. An example is Filecoin which is a usage token (allows you to use the system) and a work token (needed to provide file storage).
A few other potentially confusing terms you may hear regarding tokens and coins might be:
- ERC20 tokens which can be any token (most commonly created on Ethereum) that adheres to the ERC20 token standard of how to access information, transfer assets, and fire off events. This makes it easier for developers to create applications such as wallets that work with a variety of tokens.
- App coin/”appcoin” is an older term for a token used to fund a project.
- Alt coin/”altcoin” is an appcoin which powers its own blockchain. Any coin that does so is by definition an altcoin.
- Meta coin/”metacoin” is a token that is built on top of a blockchain that already has an underlying coin.
A simple way to think about it is: coin = cash, token = everything else.