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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.
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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
Is Bitcoin And Cryptocurrency The Same Thing?
Bitcoin is a cryptocurrency that was designed to facilitate cross-border transactions, eliminate government control over transactions, and streamline the entire process without third-party intermediaries. The absence of intermediaries has resulted in a significant reduction in transaction costs. Satoshi Nakamoto, the creator of Bitcoin, created the first cryptocurrency in 2008. It began as open-source software for money transfers. Since then, plenty of cryptocurrencies have emerged, with some focusing on specific fields.
What Type Of Currency Is Bitcoin?
Bitcoin is a type of digital currency or cryptocurrency. In January 2009, Bitcoin was established. It's based on Satoshi Nakamoto's ideas, which he laid out in a whitepaper. The name of the individual or people who invented the technology remains unknown.
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
How Does Bitcoin Technology Work?
The blockchain is the foundation of Bitcoin. It is a decentralized, distributed ledger that tracks the provenance of digital assets. The data on a blockchain can't be changed by design, making it a real disruptor in industries like payments, cybersecurity, and healthcare.
Who Created Bitcoin?
Bitcoin is the first application of the concept of "cryptocurrency," first articulated in 1998 on the cypherpunks mailing list by Wei Dai, who proposed a new form of money that relies on cryptography rather than a central authority to manage its creation and transactions. Satoshi Nakamoto published the initial Bitcoin specification and proof of concept on the cryptography mailing list in 2009. Satoshi exited the project in late 2010, with little information about himself available. Since then, the community has evolved, with numerous people working on Bitcoin. Satoshi's anonymity has sparked unfounded fears, many of which may be traced back to a misunderstanding of Bitcoin's open-source nature.
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.
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 Bitcoin Mining Works?
Bitcoin mining is a crucial element of the blockchain ledger's upkeep and development and the act of bringing new Bitcoins into circulation. It's done with the help of cutting-edge computers that solve exceedingly challenging computational arithmetic problems. Auditor miners are rewarded for their work. They're in charge of ensuring that Bitcoin transactions go through smoothly and legitimately. This standard was established by Satoshi Nakamoto, the founder of Bitcoin, to keep Bitcoin users ethical. By confirming transactions, miners assist in avoiding the "double-spending issue."
How To Create Bitcoin Account?
Firstly, Go to the WazirX website and sign up. Then, a verification mail will be sent to you. The link sent via verification mail would be available only for a few seconds so make sure you click on the link sent to you as soon as possible, and it will verify your email address successfully. The next step is to set up security, so select the most suitable option for you. After you have set up the security, you will get a choice to either proceed further with or without completing the KYC procedure. After that, you will be directed to the Funds and Transfer page, where you could start depositing Bitcoins to your wallet. You can also deposit INR and then use it to buy Bitcoin for your WazirX Bitcoin wallet.
