By Admin Content Team December 21, 20203
minute read
Home » All
Posts » What is the difference between a token and a
Bitcoin?
Table of Contents
·
Coins
·
Tokens
·
The Difference Between a Token and a
Bitcoin
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.
Get
WazirX News First
NameName
EmailEnter your email address
Subscribe
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.
