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Yes, there is a tremendous opportunity with cryptocurrency right now.
But for many, the barrier to investing in cryptocurrency is not financial; it’s educational.
Cryptocurrency involves new verbiage — blockchain, smart contracts, Bitcoin, Altcoins, coins, tokens — and these terms can be complex.
But they aren’t impossible to understand.
In order to profit from cryptocurrency, it’s critical to understand one of these complex terms: coins vs tokens.
What are coins and tokens?
How are they different?
How can you profit from them?
In summary, tokens are used for transactions while coins are used to store value. But in this article, we'll take a deeper look at both.
Let's get started!
What is a Token?
Tokens are created with a specific purpose in mind and act as a representation of an asset or utility.
Tokens are used as a currency within an ecosystem, not just a store of value.
How is a Token Used?
Tokens are used for transactions or to purchase goods/services within a specific platform.
How is a Token Created?
Tokens are created through a process called 'tokenization'.
This is the act of taking an existing asset and turning it into a token. The purpose of this is to make it easier for people to invest because tokens are much more liquid than assets.
Tokens are built on existing platforms like Ethereum or NEO, so it's important to understand their ecosystem before buying them.
Advantages & Disadvantages of Tokens
Tokens have a few advantages over coins:
- Tokens are much more liquid than coins because they can be bought and sold on exchanges easily
- Tokens are easier to understand than coins because they're built on top of existing platforms with well-defined rules and regulations
- Tokens offer investors exposure to projects that may have regulatory or technical risks
A Real-Life Example of a Token
The Game Coins (GC) from the 'Game of Coins' example offer their holders a chance to purchase in-game items or upgrades.
This is what tokens were created for — they're utility assets that give you access to platforms and opportunities.
What is a Coin?
Coins are commonly referred to as cryptocurrencies. They are often used for everyday transactions, much like fiat currencies such as Euros or US Dollars.
Coins usually work on their own blockchain protocol and require additional information than tokens.
How is a Coin Used?
Coins are used to transact and store value. They can be traded for other coins or fiat currencies such as the US Dollar, Euro, etc.
Coins also have their own platforms where you can buy/sell them, so it's critical to understand what they offer before buying.
How is a Coin Created?
Coins are created through a process called mining.
They have their own protocols and rules that must be followed to create them.
Coins can also be purchased from an exchange or from someone else who is willing to sell them.
Advantages & Disadvantages of Coins
- Coins are less volatile than tokens
- Coins provide investors exposure to projects that may not require additional information or regulation
- Coins offer an alternative store of value when compared with traditional forms of currency
A Real-Life Example of a Coin
Bitcoin is often referred to as “digital gold” and is used to transact and store value.
Coins like Bitcoin also have their own platforms where you can buy/sell them like Coinbase or Binance.
The Bottom Line: Coins vs Tokens
Understanding coins vs tokens is one of many ways that you can grow your education and ensure that you invest wisely in the world of cryptocurrency.