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Those who are new to the world of cryptocurrency can sometimes find the information available to be overwhelming. There are several new terms that you need to learn when acknowledging yourself about these digital assets. Fortunately, you do not need to know every technical detail before you can start using cryptocurrencies yourself. A few basic terms can help you get a better view without getting too technical.
Two terms that you may regularly see are crypto tokens and crypto coins. These two terms are even used interchangeably in some cases. They do, however, have differences and should, in reality, not be used in such a way. While crypto coins were the first to be introduced with Bitcoin and earlier cryptocurrencies, the use of tokens has become very popular recently. We take a closer look at what these are and how they differ.
When referring to a cryptocurrency, it can be either a token or a coin. While coins are considered the more traditional option, tokens have started to increase in terms of popularity and value recently.
A crypto token is a type of digital asset that does not have a native blockchain that powers the currency. When a new blockchain is developed, it is accompanied by the creation of a new cryptocurrency. In this scenario, the cryptocurrency is considered the native asset of the blockchain - and also called a coin.
When a token is created, it is based on these blockchain networks that were already created in the past. One of the most popular blockchains that powers many tokens is Ethereum, but there are many more examples out there. The token can be created for different purposes. In many cases, developers use tokens as a way to help people send money to others at lower costs and with faster speeds. Today, however, tokens are used for other purposes too - such as currencies in games and even as a form of digital collectibles.
How Do Tokens Work?
Tokens are different from coins. When tokens are created, then an existing blockchain is used in the process. This makes the process of creation much easier and more streamlined, particularly when we compare it to the procedure necessary to create a crypto coin. With a crypto coin, the organization or individuals behind the projects does not only focus on the creation of a new cryptocurrency but also need to develop a completely new blockchain. This process can take a significant amount of time and requires a lot of skill. It can also be a costly operation when third-party developers need to be hired in the process.
With tokens, there is no need to recreate the blockchain part of the system. Instead, the developers will start by choosing an appropriate blockchain to use in the creation of the token. Ethereum is considered the most popular blockchain that allows others to create tokens on top of the technology. There are, however, several other blockchains that can be used for the creation of new tokens as well.
These tokens can then be used for different purposes. While there are many tokens created to also assist the general public to make transactions without a central authority, there are other purposes for these tokens too. One example would be the range of dApps that are present on the Ethereum blockchain. Each of these has a specific purpose.
As an example, Synergy of Serra is a card-based game that uses a token called "Crates." These tokens are used as an in-game currency, but the fact that the system is built on blockchain also means it is possible for those who play the game to earn in the process.
Where is Token Trading Going?
In just a few years, we have seen a significant number of exchanges start to open up to the idea of cryptocurrencies as valuable assets that can be used throughout trading. Thus, many companies have now started to give customers the opportunity to trade with cryptocurrency tokens, in addition to standard fiat currency options.
In the future, this trend is going to continue rising. Experts have also weighed in on this matter. It has been established that cryptocurrencies are here to stay. With this in mind, we are also seeing the value of these tokens increasing consistently.
Main Types Of Crypto Tokens
Just like there are differences between crypto tokens and coins, it is important to understand that different forms of tokens exist too. You do need to ensure you understand how different types of crypto tokens differ - as they are generally used for different purposes.
Types of tokens for practical use
Security tokens are similar to securities. They are used for investment and allow you to receive some form of dividends.
Utility tokens give owners access to the services that the project provides.
Payment tokens - close to cryptocurrencies, used to pay for goods and services on platforms or between platform participants
Ethereum Blockchain Tokens
Ethereum is considered one of the biggest altcoins that exist today. This system has its own native blockchain, and Ether is the coin that represents the network. The network was developed to empower developers who are looking for a way to develop applications that are based on blockchain technology. Many of the applications, generally referred to as decentralized apps or dApps for short, uses the Ethereum network’s native coin as a digital currency. There are, however, a number of developers who have used Ethereum as a way to create entirely new cryptocurrencies. In these cases, the cryptocurrencies that are developed on top of the Ethereum blockchain are called tokens.
Some of the most popular Ethereum blockchain tokens in existence today include Uniswap, IDEX, MakerDAO, and CryptoPunks. Each of these features its own token and serves a specific audience.
Cryptocurrency Exchanges Tokens
Sometimes, tokens are created not for the purpose of apps but rather to assist in the process of exchanging digital currencies. Cryptocurrency exchange tokens are becoming popular, with the most commonly used one being BNB or Binance Coin. This is a native token on the Binance network and is used as a digital currency for transactions that are made on the platform.
When you register with Binance, you can choose to convert your deposit into BNB. From this point, you can then exchange the BNB for other cryptocurrencies. The benefit here is that cryptocurrency exchange tokens can often be used on their native platform to reduce the costs of certain transactions. For example, paying for transaction fees with a positive BNB balance on Binance reduces the costs of trades and other transactions that are implemented on the network.
Other Tokens
There are other types of tokens in existence too. One example that also seems to become very popular now is collectibles. These are digital assets, which can be in the form of virtual pets, cards, and more. You would generally buy a specific token, which serves as fuel for the platform. Fuel is then paid in the form of a token to generate a character or other type of collectible on the network.
Reward tokens are another good example. These are generally provided as a type of compensation or reward on a network. Tokens may be awarded for participation or for completing specific tasks. People can sign up to the network, participate in events, and follow instructions - in turn, their account is credited with the appropriate number of tokens based on the current reward scheme and the actions performed.
Understanding the main factors that set coins and tokens aside from each other is important. This gives you the ability to determine which would be the more appropriate investment option for you. It also allows you to realize how each works and which could result in better profits and security.
Coins
Tokens
Coins have a native blockchain that powers the digital currency.
Tokens do not have a native blockchain but rather runs on a blockchain that was developed for a specific coin.
Coins are harder to develop and create, as a new blockchain network needs to be established before a coin is created.
Tokens run on an existing blockchain, which makes these digital assets much easier to create.
Coins are primarily used to assist in the processing of payments.
Tokens can be used for much more than just processing a payment between two accounts.
As cryptocurrencies become more popular, we are seeing an increasing number of exchanges giving you the ability to buy these tokens and coins. While there are many options, Traders Union has found Binance to be one of the best. This exchange is currently one of the biggest in the world when looking at altcoins.
Over $11 billion in trade volume is made on the Binance exchange every day. The company's platform gives you the ability to select from 263 cryptocurrencies. Binance also holds a large market share in the cryptocurrency exchanges industry and has over 1,100 listed markets. The Binance platform offers advanced security features and uses algorithms to help keep your holding of cryptocurrencies in your account safe. The platform also allows you to initiate different types of cryptocurrency trading and investment strategies. You can use Binance on both a mobile device and a desktop computer.
How To Buy Crypto Tokens: 3 Steps Algorithm
We share a thorough overview of a three-step algorithm that Traders Union has developed. These steps each play an important role in ensuring you are able to make informative decisions.
In this process, we use the Binance exchange as an example. This is a trusted platform that makes the process of buying, investing, and trading with cryptocurrency significantly easier. Binance also has its own cryptocurrency, called the Binance Coin or BNB.
Market Analysis
Start with a thorough analysis of the markets at the current time. The value of cryptocurrencies tends to fluctuate over time. Even within a single day, there can sometimes be a significant change in the value of a token or coin.
Binance gives you access to a full overview of each altcoin listed on the market. This gives you an opportunity to do a thorough analysis of the cryptocurrency. Be sure to take all factors listed into account. Start by looking at how the cryptocurrency has fluctuated within a 24-hour period. This gives you a good overview of the current volatility. Next, consider the past trends of the coin. Has the coin been gaining momentum or suffered a decline in value over the last 12 months?
Binance Web Platform
Funding Account
When you have done some research, conducted a thorough market analysis, and have registered for an account on Binance, the next step is to fund your account. Take note that you might need to go through a verification process first, depending on how much you wish to deposit. Larger deposits require an additional verification step, which generally includes submitting proof of your identity.
You need to consider which payment method you prefer when making a deposit. Binance does offer a number of different funding options. You can choose to fund your account through cryptocurrency that you already hold in a wallet. If you do not own any cryptocurrency, then no need to be concerned. You can also buy cryptocurrency on Binance by using your credit or debit card. Simply enter the amount you wish to deposit into your Binance account and complete the checkout steps.
Buying A Token
After funding your account, the money you deposited will reflect on your profile. Note that with some payment methods, the process may take a few minutes to complete. Wait until funds reflect, and then you are ready to buy your first cryptocurrency token.
There is a wide selection of tokens that you can buy on the Binance platform. BNB is a good option, particularly since this is the native cryptocurrency on the Binance blockchain. You can gain several benefits from choosing to buy BNB. You can also choose to start off with BNB. From there, you can then convert the BNB to other altcoins that are listed on the Binance network.
Top 10 Best Cryptocurrencies To Invest In
You now understand the differences between a token and a coin in the crypto world and have a good idea of where to buy these. Next, you should educate yourself on the best cryptocurrencies that are worth investing in this year and in the upcoming future. We share our selection of top options in the table below.
Even though we often see crypto tokens and coins mentioned to refer to a single cryptocurrency, it is important to understand that these are different types of digital assets. Tokens are based on a blockchain that already exists, while a coin has its own native blockchain. Understand the differences, as well as the pros of cons of each. This helps you make better decisions when you decide to invest in cryptocurrencies or use them for specific purposes.
FAQs
Do crypto tokens have value?
When it comes to the valuation of crypto tokens, you step into a complex situation. The tokens themselves are merely figures that represent your holding of a specific token in a wallet or at an exchange. The demand for these tokens, however, is what drives value and causes each to be linked to a specified price.
Is Bitcoin a token or coin?
Bitcoin is considered to be a coin, as it runs on its own blockchain technology. Ethereum and Ripple are also good examples of coins.
Can a token become a coin?
While not impossible, it is not something that we really see. A token does not have its native blockchain but rather runs on another non-native blockchain. For a token to become a coin, a new native blockchain needs to be developed specifically for the digital asset.
How do crypto-tokens make money?
The tokens themselves do not hold true value - it is rather the demand, scarcity, and other related factors that form a collection of calculations. In turn, these calculations determine how much a specific coin would be worth, along with its current position in the cryptocurrency industry.
Alamin Morshed is a contributor at Traders Union. He specializes in writing articles for businesses who want to improve their Google search rankings to compete with their competition.
Over the past four years, Alamin has been working independently and through online employment platforms such as Upwork and Fiverr, and also contributing to some reputable blogs. His goal is to balance informative content and provide an entertaining read to his readers.
His motto is: I can dream or I can do—I choose action.
Dr. BJ Johnson is a PhD in English Language and an editor with over 15 years of experience. He earned his degree in English Language in the U.S and the UK. In 2020, Dr. Johnson joined the Traders Union team. Since then, he has created over 100 exclusive articles and edited over 300 articles of other authors.
The topics he covers include trading signals, cryptocurrencies, Forex brokers, stock brokers, expert advisors, binary options. He has also worked on the ratings of brokers and many other materials.
Dr. BJ Johnson’s motto: It always seems impossible until it’s done. You can do it.
Mirjan Hipolito is a journalist and news editor at Traders Union. She is an expert crypto writer with five years of experience in the financial markets. Her specialties are daily market news, price predictions, and Initial Coin Offerings (ICO). Mirjan is a cryptocurrency and stock trader. This deep understanding of the finance sector allows her to create informative and engaging content that helps readers easily navigate the complexities of the crypto world.
