In the world of cryptocurrency, it is common to hear about coins and tokens. What do they mean? Why these two terms? Would it be the same concept? Not really…
Basically, a cryptocurrency is based on a mechanism called the blockchain , which is the equivalent of a register of transactions carried out on this currency. The blockchain is the element that guarantees the reliability of a given transaction: it is based on an encryption system of such complexity that it is virtually impossible to falsify it. One of the exceptions – extremely rare – concerns the 51% attack and supposes that a hacker manages to take control at a given moment of more than half of the computers dedicated to the validation of a currency, in the world.
Bitcoin was the first currency to be based on a blockchain, in accordance with the specifications of this currency set out in the white paper published by Satoshi Nakamoto on October 31, 2008. As early as 2011, other cryptocurrencies appeared such as Litecoin and Namecoin:
- Namecoin is built on the Bitcoin blockchain ;
- Litecoin relies on its own blockchain.
A blockchain affair
There is therefore a distinction between these two types of money. From there, a nomenclature was born:
- A currency that relies on its own blockchain is a coin. We often speak of “ altcoin ” to designate a coin other than Bitcoin.
- A currency that relies on a pre-existing blockchain is a token.
What could have been the point of creating a type of blockchain different from that of Bitcoin ? Quite simply because, over the years, certain shortcomings have appeared in the use of this original blockchain. Thus, it is well known that the Bitcoin blockchain has grown excessively over the years – its size was 354 MB at the beginning of September 2021. It has become unwieldy with, for during excessive power consumption for transaction validation, which brings Bitcoin to be regularly decried.
From 2014, Ethereum appeared, again with a blockchain of its own – we also speak of a “native” blockchain. However, a large number of cryptocurrencies have appeared in its wake, similarly based on the Ethereum blockchain, with specifications laid down in a specific document: ERC-20. Among these currencies, we can cite the BNT of Bancor, the REP of Augur, the CVC of Civic… A large number of the cryptocurrencies thus appeared since 2014 are thus based on the Ethereum blockchain.
At the same time, some cryptocurrencies have chosen to define their own blockchain, for example, Cardano’s ADA or Monero’s XMR.
- Ethereum, having its own blockchain, is a coin.
- Ethereum-based currencies such as BNT, REP or CVC are tokens.
- Currencies such as ADA or XMR are coins.
When a token becomes a coin
It also happens that a currency starts as a token, then changes its nature to become a coin. Thus, Binance’s BNB was first a token based on the Ethereum blockchain. Then, the BNB evolved to be based on its own blockchain. So it became a wedge.