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Topic 5
People often confuse the difference between tokens and coins, so we thought a brief guide on the two would be useful.
In this short blog, we’ll look at the definitions, and provide specific examples of each.
Coins are cryptocurrencies that have their own standalone blockchain — like Bitcoin, or Ethereum. They are developed with a specific goal in mind. Bitcoin, for example, was developed for the following purpose:
Note: When we talk about ‘Monetary Policy’, we mean in the traditional economic sense.
“Monetary policy is the control of the quantity of money available in an economy and the channels by which new money is supplied” – Investopedia.
Another key characteristic of a coin is that it can be mined in a process known as ‘Proof of Work’ (PoW) – a detailed piece on PoW is coming soon.
Bitcoin mining is the process of creating new bitcoins, and it occurs when miners solve extremely complicated math problems to verify transactions on the blockchain. Upon successfully solving the problem, the miner receives a predetermined amount of bitcoin (a reward).
Coins can be defined by 3 key features.
The term ‘token’ is typically used to describe every cryptocurrency asset in the market, but if we want to get specific, tokens have the following characteristics:
There are different types of tokens, giving users access to a range of functions.
In summary, tokens are application-specific, operating on another cryptocurrency’s blockchain, with the goal of providing users with incentives and functions. Coins are basically a method of payment, whilst tokens can also represent a share in a company or ownership of a home.
As the cryptocurrency space matures, we are seeing an evolution in how tokens offer utility, further advancing the industry, and pushing it deeper into uncharted territory.
Clutch is a social-DeFi crypto wallet that has been built with a mission of bringing more women into crypto. We are immersing ourselves in the crypto space to continue bringing our community the most up-to-date information and instruction on how they can safely and confidently invest.
Bec Jones
James Kouzinas