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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
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.
How Can I Convert Bitcoins To Cash?
Bitcoin may be converted to cash in various ways, including crypto exchanges, Bitcoin ATMs, Bitcoin Debit Cards, and Peer to Peer Transactions. You may do this by using Bitcoin exchanges like WazirX. You may also sell Bitcoin for cash faster and more anonymously through a peer-to-peer marketplace.
What Is The Meaning Of Bitcoin?
Bitcoin is a type of cryptocurrency that was first introduced in January 2009. It is invented based on the key concepts and notions presented in a whitepaper by Satoshi Nakamoto, a mysterious and pseudonymous figure. The name of the individual or people who invented technology is yet unknown. Bitcoin promises reduced transaction fees than existing online payment methods, and a decentralized authority controls it, unlike government-issued currencies.
Is Bitcoin Cash A Good Investment?
Bitcoin Cash is a hard fork of Bitcoin formed in 2017 to address Bitcoin's scalability and challenges. Bitcoin Cash seeks to make global transactions faster, cheaper, and more secure. Bitcoin Cash is now accepted by thousands of online and offline businesses all over the world. Studied correctly, Bitcoin Cash may be an investment worthy of consideration.
What Is Bitcoin?
Bitcoin is a decentralized digital currency that may be purchased, traded, and traded without intermediary like a bank. Bitcoin is built on the blockchain, which is a distributed digital ledger. Wei Dai suggested a new kind of money that relies on cryptography rather than a central authority to oversee its production and transactions on the cypherpunks mailing list in 1998. Bitcoin was the first application of that notion. In 2009, Satoshi Nakamoto sent out the first Bitcoin specification and proof of concept to a cryptography mailing group.
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.
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 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.
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.
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.
