Token, coins, and virtual currencies. Aren’t those the same thing?
No. They’re not the same thing but they’re closely related and that’s why this can easily turn into a confusing topic.
If you’ve been around the cryptocurrency world for long enough, you might have seen these terms before. Many people tend to use these words interchangeably, but despite their similarities, there are also some major differences.
Cryptocurrencies are in fact a form of virtual currency. However, not all cryptos are.
Some cryptos like Bitcoin are considered virtual currencies while others like Binance Coin are actually tokens. Knowing this, it’s easy to understand why this can get confusing. After all, the three of them can be used to pay in one way or another.
Some people see “decentralization” as a major deciding factor when deciding whether cryptocurrency is considered virtual money or an actual cryptocurrency. A good example of this is the JPM Coin which was presented as a virtual coin, but some people were quick to tell that this was not a cryptocurrency because it was centralized.
So, What Is The Difference?
The easiest way to understand the difference between token coins and virtual currencies is to look at the actual definition of each one.
What is a token?
Depending on where you search, tokens can be defined in many different ways. However, its core concept remains the same.
“A token is actually nothing more than a new term to make reference to a unit of value issued by a private entity.”
“Tokens are digital assets that can be used inside the ecosystem of a given project.”
In the real world a token can be seen as a ticket that represents a value. For example, if you buy a bus ticket it can be considered a token that allows you to ride the bus. In the cryptocurrency ecosystem it is somewhat different but the concept remains.
Tokens require blockchain platforms to operate. Some good examples are platforms like NEO or Ethereum (which is the most common token creation platform). They can be used as means of payment in different decentralized platforms and have lots of uses.
Creating a new token is fairly easy if you have some experience programming. It doesn’t actually take much time but you do need to spend some native coins to the blockchain.
When you create a token on Ethereum you’ll have to spend some Ether for the miners to validate the creation and every transaction made with it. Paying miners for every transaction might be surprising for some people but miners are what keep a blockchain alive and what allows transactions to occur, so it is mutually beneficial.
What Is A Coin?
Bitcoin might be the first thing that comes into mind. If it is, then you’re right.
Besides being the first cryptocurrency Bitcoin is a coin, defined as an asset native to its own blockchain. Litecoin, Ether, Ripple and EOS are some good examples of what a coin is.
- XPR operates on the Ripple ecosystem.
- Bitcoin operates on the Bitcoin blockchain.
- Ether operates on the Ethereum blockchain.
The great thing about coins is that transactions are fairly easy to make and you don’t actually need a physical form of it as these coins exist digitally on a database. Each coin exists in their own ecosystem, whether it is centralized or not.
They are used just as physical money and it generally behaves just like it. There’s a limited supply, you can use fractions of it to make purchases and you can save it on digital wallets. And even though this is not their only use, more often than not it is used with this purpose.
A good example is Bitcoin which you can use to pay for goods even in physical stores (outside the internet). Also you can store it without a problem for the amount of time you like and even price your goods or services in BTC.
Some others like ETH can be used to fuel certain transactions such as token transactions or creation. In this particular case, ETH becomes different than “just money” although it is used to reward miners for keeping things going.
What Are Virtual Currencies?
Virtual currencies are a type of currency. Such definition might seem as clearly stating the obvious but it must be understood as such for it to make actual sense.
The main difference between virtual currencies and traditional currencies is that the virtual counterparts are only available in digital form. Transactions and wallets are available through specialized software, internet, computers and dedicated networks. Cryptocurrencies are not the only virtual currencies but are the best example.
Virtual currencies are considered a type of digital currency that exist in an unregulated environment, according to the European Central Bank “is used as a payment method among members of a specific virtual community.”
However, in some cases, these currencies can be converted to traditional currencies such as dollars or euros through exchanges. So, cryptos like Bitcoin and Ethereum are a type of virtual currency that you can use to trade or purchase. Some of the main aspects of it are:
- Virtual currencies are not controlled by other financial institutions.
- They’re somewhat independent from various economic factors including geopolitics.
In short, virtual currencies are just a type of currency that exists in digital form and are not issued by financial institutions. Other than that, its uses remain practically the same, serving as a payment method.
Tokens, Coins and Virtual Currencies: Conclusion
To make it even more simple you can look at it this way.
- Virtual currencies are just a type of decentralized digital currency (meaning they’re only digital). Coins are generally a form of virtual currency.
- Coins are an asset that is native to its own environment (Bitcoin to Bitcoin Blockchain). Most commonly used as a payment method
- Tokens can be used to perform transactions and some other actions like using it as an ID. A certain value can be given to them (but not necessarily monetary value).
Knowing these terms in its simplest definition makes understanding the three concepts much more easy. Although not everyone is interested in making sense of such definitions it is really important for traders and crypto investors to understand it because of the financial characteristics and repercussions of each.