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Before we get into which is the better investment, you need to know the difference between crypto coins and crypto tokens. To understand that difference your first must understand what blockchain is.
What Is Blockchain?
Blockchain is a distributed database that is shared among users in a digital network. Think of an accounting ledger. It is a record of all transactions that take place within an account or a company at a higher level. Now, imagine if all companies shared their ledgers publicly. This would virtually eliminate billing fraud as each member of the network could see every transaction and verify its authenticity even if they were not participants in the transaction itself. This is how blockchain technology works.
Crypto Coins
A crypto coin is a cryptocurrency that is built on its proprietary blockchain. Bitcoin, Litecoin, and Ethereum are all examples of coins. They have their own blockchains that are wholly independent of one another, and these blockchains have different coding, different features, and may be more or less complex than one another. However, this doesn’t mean that all coins’ blockchains have been developed from scratch.
There are times that blockchain developers may have a difference of opinion in how best to move forward or what advancements to make on the blockchain. Should they take a hard fork in development, the subsequent offering is considered a new coin and not a token much in the way Bitcoin Cash developed from Bitcoin.
Crypto Tokens
On the other hand, crypto tokens are cryptocurrencies that are separate offerings but are built on the blockchain of another cryptocurrency. Binance Coin and Makercoin are both tokens that use Ethereum’s blockchain. You’ll notice that both of those tokens have coin in their name. Many crypto developers use the terms interchangeably even though they refer to two different items. In order to know what you’re purchasing, you need to research the crypto more than just looking at the name. You also need to research crypto exchanges before investing your capital based on the benefits and broad selection of cryptocurrencies.
Why Are They Separate Entities?
At this point, you may be asking why even have two different types of cryptocurrency. Even operating off of the same blockchain, tokens can provide significantly different technological advances when compared to the blockchain’s coin. For example, Makercoin has a specific use on the Ethereum blockchain. It can only be used to pay fees within Maker’s proprietary system for the issuance of Dai. Dai is a stablecoin also run on Ethereum blockchain that uses these technological improvements to remain equivalent to the US dollar without being centralized. That may seem unnecessarily complex, you don’t need to understand the underlying details to get that this is a significant change in technology compared to the Ethereum coin offered on the same blockchain.
So Which Is Better?
Trying to determine whether coins or tokens are better is like a blanket statement of whether options or stocks are better. Everyone will have a different opinion, and what it really boils down to is if you understand the investment and can use it to make money. Many tokens are issued with the intent of eventually becoming their own coin after raising capital while others like Makercoin serve an entirely different purpose.
