Coins And Tokens What’s What?
Confused? Don’t be! Here’s a short guide
Web3 is a pretty young domain, so each time something new appears there are no naming conventions (apart from the fundamental technology staff) so it’s up to the creator of the thing to pick a name for it. Sometimes it may lead to confusion. For example, the terms “Coin” and “Token” have close meanings, it is easy to mix them up. Let’s fix this!
First thing to know: almost any asset in web3 is a token by default, since it has to live somewhere on the blockchain. Even a picture of a monkey has a token representing it on the blockchain, but later about that. The important thing is that not every token is a coin.
A coin is an asset that has its own blockchain. Since coins are also tokens, they sometimes are referred to as the chain’s “native token”. Usually, a native token will have the same name as its blockchain. For example, Bitcoin, Ethereum, and Tron.
What is a token then? Simple, a token is an asset built on top of the basic blockchain logic. It may have some unique properties (like NFTs do), but it has to obey the fundamental rules / standards made by the developers of a particular blockchain.
Remember the naming part that we’ve started with? That’s where things get messy. As the definition suggests, having a coin to its name should imply that there’s an independent blockchain underneath, right? Wrong! Take Stablecoins — they might run on top of any other popular blockchain (usually, Ethereum). So stay sharp and investigate, what’s the original blockchain behind a token or “smth smth coin”.
Tokens serve various purposes: governance, staking, being a unique collectible, payment for a specific service, proof of achievement. Some tokens have their own names (NFT stands for Non-Fungible Token). Sometimes the purpose is stated explicitly “governance token”, but not necessarily, so read the docs!
The important part here is economics: a coin is intended as a medium of exchange, thus its price reflects its purchasing power (as with fiat money, how many goods and services you can purchase with one unit of a currency), whereas a token might be a thing in itself and its value strongly depends on what it has been made for initially. For example, if a token is used to pay for the services inside some network, its price might reflect the demand for the particular service.
- A coin is a token with its own blockchain. It can be called a native token to that chain.
- Almost everything is a token, but not every token has its chain.
- Don’t get confused by the names, “coin” does not necessarily mean having its own blockchain. In the Stablecoin case the intention was to signal that these tokens are meant to be a medium of exchange.
- Tokens have many functions — it’s a good practice to investigate what a particular token can be used for. This could also help you understand what could affect its price.
Written by Artemy Domozhakov-Liarskii especially for Super Protocol