Coins v. Tokens
Cryptocurrencies (coins) and tokens are the two main types of digital assets that dominate the blockchain space. The terms cryptocurrency and token are often used interchangeably, but the key differentiating factor is that coins are minted or produced on their own blockchains while crypto tokens are produced on an already existing blockchain. Think of Ethereum’s Ether ($ETH) being a cryptocurrency while other ERC20 tokens that populate the Ethereum ecosystem are crypto tokens.
Bitcoin is the largest by market capitalization. The original cryptocurrency, built in 2009 by pseudonymous inventor(s) Satoshi Nakamoto, often captures the world’s attention due to its hype cycles and high price volatility which center around the Bitcoin halving event (Bitcoin’s halving occurs every four years when the $BTC rewards for minting a new, valid block of data is cut in half). There are hundreds, if not thousands, of other blockchains that have their own native cryptocurrency. Cherry Network’s $CHER, BNB Chain’s $BNB, and Solana’s $SOL are just a few of the cryptocurrencies present in the blockchain space today.
Cryptocurrencies are often used to pay fees on a blockchain or to incentivize node operators to secure the blockchain. Therefore, the more network activity there is, the higher the price of the cryptocurrency due to greater demand. Cryptocurrencies may be traded, used as a medium of exchange, or held as a store-of-value investment which means investors believe they will hold their value or become more valuable than their fiat currency counterparts.
Tokens are units of value that are built into projects and protocols that are built on top of layer 1 blockchains such as Cherry Network, BNB Chain, or Solana. Layer 1 blockchains with smart contract compatibility have integrated token standards that allow new platforms to mint tokens on the chain. Such token standards include: Ethereum’s ERC20, BNB Chain’s BEP, and Solana’s SPL standard. These token standards allow for interoperability between tokens and with the native blockchain. Crypto tokens can serve a multitude of functions on their platforms. Some common utilities of tokens include participating on decentralized finance (DeFi) platforms, accessing platform-specific services, and even playing games. As blockchain’s use cases continue to expand, the number of unique tokens will continue to grow at a remarkable pace.