Token vs Coin: What’s the Difference?
There’s often a mix-up of terms in cryptocurrency-related articles. We’re here to demystify the key differences between coins and tokens, and delve into their distinctive creation aspects, so you can decide which is right for you.
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The Difference Between a Cryptocurrency and a Token
Cryptocurrencies can be broadly categorized into two groups: coins and tokens. It's important to note that some experts also classify NFTs as cryptocurrencies. This remains a contentious point, as non-fungible tokens are indivisible, unique, and not typically used as a medium of exchange. However, history has witnessed intriguing experiments in this area.
The distinction between coins and tokens can be explained as follows:
- Coins operate on their own blockchain. For instance, Bitcoin (BTC) and Ethereum (ETH) function on their respective blockchains. Tokens, in contrast, are created within the ecosystems of existing, external blockchains.
- Coins play a crucial role in their network's functionality. They can be used to pay transaction fees or contribute to the blockchain's security via mining or staking. While tokens may serve similar roles, they have significance only within their specific project's scope. For example, the CAKE token from PancakeSwap, built on the Binance Smart Chain (BSC), can be used for specific operations within PancakeSwap, like NFT creation or lottery participation. However, CAKE isn't usable across all BSC network applications, such as those related to gaming or other NFT projects. This is also true for the myriad of ERC-20 tokens on the Ethereum blockchain.
- Coins are generally more secure, backed by a decentralized network. Compromising a token's liquidity pool is often simpler than breaching the integrity of an entire blockchain.
- Creating your own blockchain provides the opportunity to attract external projects and build an extensive ecosystem. If you opt to create a token on an existing blockchain, you inherently limit your collaboration potential with other teams.
Creating Coins and Tokens
To create a token, developers commonly utilize existing tools and open-source code.
In contrast, creating a coin requires a team of skilled blockchain developers and a significant amount of time.
Maintaining a coin's network demands ongoing support to ensure its functionality.
Another method to launch a new coin is through forking an existing blockchain chain. Dogecoin, for instance, is a project that originated from a fork of Litecoin. Yet, even in this case, blockchain coding specialists are indispensable.
Moreover, a critical task is to attract miners motivated to maintain the network's operability.
Tokens offer the advantage of interacting with the existing user base of ‘parent' blockchains such as Ethereum, Binance Smart Chain, Solana, and Polygon. This interaction allows tokens to leverage the established security and reputation of these networks within the crypto community.
Conversely, the investment potential of a new coin may be greater than that of a new token.
Ultimately, the decision between creating a token or a coin depends on the specific functionalities they are intended to serve.
Does Your Project Need Its Own Cryptocurrency?
For launching DApps or decentralized games, often a simple utility token suffices. This digital asset is ideal for conducting ICOs, crowdfunding, and granting access to the platform.
However, if you're looking to broaden your project's horizons, creating a cryptocurrency with its blockchain might be more promising.
Understandably, this is significantly more costly than launching a token using open-source code. But if executed well, a coin can offer more complete digital sovereignty, as it's entirely your network.
Regardless of the choice, both options demand considerable marketing efforts and financial investments.
Popular Solutions for Creating Cryptocurrencies
Binance Smart Chain (BSC), Ethereum, and Solana are among the most popular platforms for token creation. These networks offer ready-made tools for launching new tokens based on pre-developed standards.
BEP-20 and ERC-20 tokens exemplify the diversity of options for those looking to create their digital assets. The ERC-20 standard is tied to the Ethereum blockchain, while BEP-20 is linked to the Binance Smart Chain (BSC). Both platforms enable the creation and customization of smart contracts, which form the basis for creating digital assets and DApps.
Decentralized applications allow you to build an ecosystem that increases the use cases for your token. For example, Polkadot's parachains enable the launching of independent economies, offering creators of new tokens considerable freedom.
Polygon has released a specialized Chain Development Kit based on its Layer 2 solution for Ethereum, which facilitates launching projects with minimal gas fees.
After selecting a blockchain, you should choose a suitable solution for launching your token. With BSC and blockchains based on the Ethereum Virtual Machine, this process is relatively straightforward. You can find pre-built tools that create tokens based on your specified parameters and rules.
Simple Web3 applications, like CoinTool, are ideal for creating tokens but are more suited for individuals due to the possible lack of official licenses that confirm the legality of development.
For businesses, it's safer to use certified tools, such as the Bitbond Token Tool.
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