Why is the difference between a token and a coin important?

While it is common to talk about cryptocurrency in the broad sense, there are two main classes of assets: tokens and coins.

The terms are often used interchangeably, but do not mean exactly the same thing. A “currency” is a unit of value specific to the blockchain. A “token,” or “jeton” in French, is a unit of value for a digital asset that does not have its own blockchain. Concretely, we are talking about a “coin” for Bitcoin (BTC), Cardano (ADA), Ether (ETH), or Avalanche (AVAX), and a token for a cryptocurrency using one of these blockchains, for example, Tether (USDT), or Shiba -Inu (SHIB), or Basic Attention Token (BAT), which are all based on the Ethereum blockchain.

Various uses

In theory, creating a token is much easier than creating a coin. Because in the case of the corner, you have to create a complete technology that matches it, and in particular an economic model. A token can theoretically be created in just a few minutes… But be careful, don’t take shortcuts: some tokens have real utility, like MATIC, which was created for example to reduce transaction costs on the Ethereum blockchain, or Tether, a stablecoin, which is A cryptocurrency whose price depends on the price of a “real world” asset, in this case, the dollar.

The term “stablecoin,” as such, is incorrect in part because Tether (USDT) is actually a token, not a coin. Which increases the confusion!

By its nature, the token is designed to be exchanged on a particular blockchain and to be compatible with it. Thus, a coin is technically a token, and we will often talk about “ETH tokens.” But the opposite is not true. The token is not a coin, although this term appears in its name.

Understand the basics before any investment

So it is advisable to be very careful when investing. Because if you don’t pay big fees when buying from a trading platform like Binance, you may be surprised by a nasty transfer of funds to your wallet. Ethereum tokens often come with very high transfer fees. To transfer it to his wallet, the individual will have to pay a transaction fee in Ether (ETH).

Another fundamental difference between these two types of assets is that a project implemented by its own blockchain, by its nature, will take off much higher and will last much longer than a simple token whose existence may be threatened due to the shutdown of the blockchain in which it operates… The fundamentals are different. For example, the interest of MATIC could be called into question on the day when the creators of Ethereum decided to reduce the transaction costs of the blockchain.

Another drawback of the codes is that, with the exception of some projects, there is still a lot of “waste”. No programming knowledge is required to generate a token. Some sites allow you to create your own code in five fixed minutes. And there are many scams: some token creators keep almost all the tokens at their disposal and deliberately manipulate the markets. They also don’t hesitate to use influencers to create a buzz on social networks. For this reason, it is always advisable to seriously inquire about the project before investing money in it. By consulting the project’s white paper in particular.

A final point to address: some blockchains feature “fuel” (“gas” in English). In the case of the Theta blockchain, Theta Fuel will play this role. It is a cryptocurrency whose main purpose is to pay transaction fees for smart contracts on the blockchain. In the case of the Ethereum blockchain, the “gas fee” is ETH. So it is not an element that is systematically present in every blockchain.

Finally, you will notice that a lot has been said about Ethereum, and very little about other blockchains. For good reason, if the Polkadot, Solana, Cardano, or Avalanche ecosystems are growing, the vast majority of tokens are still based on the Ethereum network. And for good reason: Ethereum was one of the first blockchains to compete with Bitcoin. Today, its capital exceeds $500 billion. The Solana and Cardano blockchains, by comparison, are ten times smaller in terms of capitalization.

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