A coin is a native currency of a given network: for example, Ethereum is the coin of the Ethereum network, DOT is the coin of the Polkadot network, ADA is the coin of the Cardano network, and so on. So a coin operates on its own blockchain and serves as the main currency within it. Coins also, can be obtained by mining or staking depending on the type of blockchain.
Tokens, on the other hand, are a digital representation of an asset and do not have their own blockchain, but are used on other blockchains. For example, SAND, a currency of The Sandbox metaverse, is a token created on the standard ERC-20 model and can only be used on the Ethereum blockchain. Therefore, tokens, unlike coins, have their transactions on a smart contract and not on a dedicated blockchain.
Moreover, tokens are divided into various categories based on their functionality:
- Utility Tokens: tokens intended to provide digital access to an application or service via a blockchain-based infrastructure. Often used for ICOs;
- Security Tokens: represent fractional ownership of any financial asset. In terms of function they are analogous to stocks, bonds and derivatives;
- Payment Tokens: tokens intended for use as a means of payment for the purchase of goods or services or as a means of transferring money or value. Cryptocurrencies belong to this category;
- ExchangeTokens: are tokens of cryptocurrency exchanges that confer benefits to holders. Examples might be BNB for Binance, CRO for Crypto.com
- NFT: Non-fungible tokens, the equivalent of digital certificates. For them we refer to the lesson NFTs: what they are and the 5 macrocategories.
- Stable-coin: digital currencies with a stable price because they are pegged to other stable currencies, commodities, or financial instruments (e.g., the dollar);