Coin vs Token Simply Explained

Let’s dive into an exciting example that will help you understand the difference between a Coin and a Token!

Imagine a promising start-up named XYZ, looking to build its blockchain for a specific purpose. But, creating a whole new blockchain from scratch requires extensive research and brainpower. So, the smart start-up decides to launch Initial Coin Offering (ICO) instead.

In an ICO, the start-up will introduce Tokens and entice investors to invest by offering Tokens in exchange for their investment. This strategy allows the start-up to raise funds while laying the foundation for its blockchain.

Once the start-up successfully builds its blockchain, it creates a native crypto-currency for it, called Coin. This digital asset holds an intrinsic value that depends on factors such as the purpose of the blockchain, its impact, security, efficiency, reliability, etc.

As the intrinsic value of coin increases, investors can gain higher returns by exchanging their tokens for coins on that blockchain or swapping them for other cryptocurrencies on exchanges that support them. This swapping process is known as token migration or token swap.

While this example showcases only a tiny distinction between a coin and a token, there are many other aspects that set them apart. For instance, in Metaverse, users own unique digital assets called NFTs or Non-Fungible Tokens. These assets include virtual real estate, avatars, weapons, clothing, accessories, and any other virtual object or property you’ve purchased or created within the metaverse. So, owning NFTs means you own virtual assets in Metaverse, which is an excellent use-case for tokens.

Similarly, consider a blockchain-based game where users who win a game receive a token. They can use this token to claim rewards or purchase new digital assets in the game.

In summary, we understand that coins are crypto-currencies native to the blockchain on which they run. In contrast, tokens represent digital assets and are issued on blockchains. Tokens are more flexible than Coins and offer a wide range of use cases that entirely depend on the purpose of the blockchain project.

Coming up with more such interesting stuff regarding Web3 and blockchain…..

For more info on article Read on Medium.