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Many of us have probably been using the terms ‘token’ and ‘coin’ interchangeably without realizing that there are minor but meaningful differences between them. It’s something we’re all fairly guilty of. But to get some clarity regarding the differences between Bitcoin and a token, we first need to understand the difference between a token and a conventional cryptocurrency as a whole.
While both of these terms are used to define a unit of blockchain value, they still refer to different categories of digital currencies. Let’s explore.
Coins
Digital coins are unique digital currencies that are based on their own standalone blockchains. In other words, a digital coin is an asset that is native to its own blockchain. Bitcoin (BTC) and Ether (ETH) are examples of such coins because they operate on the Bitcoin and Ethereum blockchains, respectively. These coins exist as data on the database (which is the blockchain), and any transactions are checked and verified by computers across the world.
Coins are used much like traditional money. They serve as a store of value, a medium of exchange, and a unit of account. However, certain digital coins like Ether, NEO, and DASH have additional features such as fuelling transactions, staking, and being allowed to vote on important decisions, respectively.
Tokens
Tokens are unlike coins in that they are created on top of existing blockchains. For example, the Ethereum platform remains one of the most common platforms for creating crypto tokens, and tokens built on Ethereum are known as ERC-20 tokens. ZRX, BAT, and GNT are some popular tokens existing on the Ethereum platform. Other such platforms include Stellar, NEO, Omni, and EOS.
An important distinction to be made here is that while coins mostly serve as a method of payment, tokens often exist to be used with dApps. They are mostly designed for specific applications and are used to activate features on the same. For example, using tokens to access games in a gaming dApp.
The Difference Between a Token and a Bitcoin
Now that we understand the difference between a digital coin and a token, it becomes far easier to understand how bitcoins are different from tokens. Much like coins, Bitcoin is a cryptocurrency (rather, the first cryptocurrency) that was built on the Bitcoin blockchain. Let’s explore the points of differences between the two.
- Bitcoin is an asset native to its blockchain, while tokens are built on existing blockchains.
- Bitcoin has monetary uses – it can be used as a store of value and a medium of exchange. It can also be used as a unit of account, which means that the things you buy can be priced in BTC too.
For example, the conversion from 1 BTC to INR is approximately 1453049 INR as of December 2020, and thus, the Bitcoin price in INR can be used to price various goods and services. Therefore, apart from monetary uses, Bitcoin does not have much use. It cannot be staked or used to gain access to a dApp.
Tokens, on the other hand, are created for different purposes altogether. These purposes can range from operating dApps, representing fractional ownership in a physical asset like real estate, voting rights when participating in governance, or even value-added services specific to brands (the WazirX token – WRX is a great example).
- Since tokens are created on existing blockchains, they are far easier to create as compared to Bitcoin. However, creating a token does require paying a fee via the native coins to the blockchain where the token is being created.
Conclusion
We’re seeing an interesting shift across the cryptocurrency sector has been the move towards Proof-of-Stake (PoS) consensus models.
Bitcoin relies on the Proof-of-Work (PoW) algorithm to validate transactions, involving ‘miners’ using high-end computing equipment to generate new bitcoins and secure the network. This has been termed by many in the community as an inefficient, resource-intensive method of running a blockchain network. Proof-of-Stake (Pos) does away with this approach and instead requires cryptocurrency holders to lock in their coins in the network to validate the transactions.
Most new cryptocurrencies being made are being offered as a token that is generated via the blockchain in this manner. Ethereum is by far the biggest brand on the PoS front. This makes Bitcoin particularly stand out when compared with tokens.
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Frequently Asked Questions
What Is Bitcoin And How Does It Work?
Bitcoin is decentralized digital money that may be bought, sold, and exchanged without an intermediary such as a bank. Bitcoin is based on a blockchain that is considered to be a distributed digital ledger. As the name suggests, blockchain is a linked database made up of blocks that store information about each transaction, such as the date and time, total amount, buyer and seller, and a unique identifier for each exchange. Entries are linked in chronological order to form a digital blockchain
Is Bitcoin Trading Is Legal In India?
In 2020, the Supreme Court of India lifted the RBI’s restrictions on cryptocurrencies. According to the Supreme Court, the existence of Bitcoin or another cryptocurrency is unregulated but not unlawful. The verdict has greatly aided the world of digital money in the country. To put it another way, investing in Bitcoin is perfectly legal, and you may do so through various apps and traders.
What Is Meant By Bitcoin?
Bitcoin is a digital currency that was initially released in January 2009. It is based on ideas offered by Satoshi Nakamoto, a mysterious and pseudonymous figure, in a whitepaper. The name of the person or individuals who invented technology has not been revealed. Bitcoin promises lower transaction fees than other online payment systems, and unlike government-issued currencies, it is decentralized.
What Is Bitcoin Used For?
Bitcoin was created as a means of sending money over the internet. The digital currency was designed to be a non-centralized alternative payment system that could be used in the same way as traditional currencies. Bitcoin is being used by an increasing number of businesses and individuals. This includes establishments such as restaurants, apartments, and law firms.
How Much Is 1 Bitcoin Worth Today?
Check out the current price of Bitcoin on the WazirX exchange. Bitcoin's value is primarily determined by its supply and demand in the market. Other elements have an impact on its worth. Its intrinsic value can also be calculated by calculating the average marginal cost of producing a Bitcoin at any given time, based on the block reward, electricity price, mining hardware energy efficiency, and mining difficulty.
How To Invest In Bitcoin?
Bitcoin may be invested in two ways: through mining or exchanges. Bitcoin mining is carried out by high-powered computers that solve challenging computational arithmetic problems that are too difficult to complete by hand and complex enough to tax even the most powerful computers. WazirX, a Bitcoin exchange, is another alternative.
How To Make Bitcoin?
Bitcoin mining is not just the process of putting new Bitcoins into circulation, but it is also an essential part of the blockchain ledger's upkeep and development. It is carried out with the assistance of highly advanced computers that answer challenging computational math problems. Miners are rewarded for their efforts as auditors. They are in charge of ensuring that Bitcoin transactions are legitimate. Satoshi Nakamoto, who is the founder of Bitcoin, innovated this standard for keeping Bitcoin users ethical. Miners help to prevent the "double-spending problem" by confirming transactions.
Is Bitcoin Mining Free?
Bitcoin mining isn't free, but it can be tried on a budget. Bitcoin mining is an essential part of the blockchain ledger's upkeep and development and the act of issuing new Bitcoins. It is accomplished by the use of cutting-edge computers that tackle complicated computational arithmetic problems. The effort of auditor miners is rewarded. They're in charge of ensuring that Bitcoin transactions go off without a fuss and that they're legal.
Is Bitcoin Legal In India?
In India, Bitcoin is not illegal. Because of cryptocurrency's rapid evolution, policymakers and regulators seemed to have recognized the chance to accept the new technology early. From the infamous 'RBI ban' in 2018 to reports of an impending bill banning cryptos in 2021 that has yet to develop, India has seen its fair share of ups and downs when it comes to Bitcoin regulation. Last year, the Supreme Court Of India approved the use of Bitcoin throughout the country. According to the Supreme Court, the existence of Bitcoin or any other cryptocurrency is unregulated but not unlawful.
Is Bitcoin A Good Investment For The Future?
Some investors are afraid of the risks or devastation, but others are very eager to pursue the possibility of profit from a Bitcoin investment. A Bitcoin investment is similar to stock investing, except it can be more volatile.
Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.
