On the platforms there is a vast sea of coins, and you don’t know which one would be suitable. But let’s start from the beginning. What is a token and what is a coin? No, they are not the same thing.
What is the difference between a token and a coin?
A cryptocoin is a digital version of a base value, which can be contested, while tokens carry assets or actions. You can buy tokens with coins, but some tokens have greater value than any of them. For example, equity shares in a company.
COINS
Coins refer to any cryptocurrency that has a standalone, independent blockchain – such as Bitcoin.
These cryptocurrencies were created from scratch, and the broader network is designed expressly to achieve a specific goal. Bitcoin, for example, exists as a censorship-resistant store of value and medium of exchange with a secure, fixed monetary policy. Bitcoin’s native token – BTC – is the most liquid cryptocurrency on the market and has both the largest market capitalization and realized market capitalization in the cryptocurrency sector.
Coin projects typically draw inspiration from past technologies or other cryptocurrencies and merge them into an innovative network that serves a specific purpose.
Another example of a coin is Ethereum’s Ether (ETH), which is the native coin of the smart contract platform for creating general-purpose computer programs that run on a decentralized blockchain. Rather than focusing on financial data, Ethereum focuses on arbitrary program data that can cover everything from gaming to social media. Ether is used for sending/receiving, managing assets, paying gas fees, and interacting with decentralized applications (dApps) on the network.
You may have also heard of altcoins. Altcoins is actually the name we give to all coins that are alternatives to Bitcoin.
TOKENS
Tokens are a unique expenditure for broader smart contract platforms like Ethereum, which allow users to create, issue, and manage tokens that are derivatives of the primary blockchain.
The ICO craze in 2017, for example, boosted Ethereum’s ERC-20 token standard, which is essentially a protocol for creating tokens (in addition to ETH) on the Ethereum blockchain that can be exchanged with one another. Projects would publish or build an application on Ethereum using smart contracts and issue a native token for use within that application, raising funds directly from investors in ETH in the process.
Tokens occupy a unique corner of the cryptocurrency market, where they function as “utility” tokens within an application’s ecosystem to incentivize certain behavior or pay fees. For example, the popular ERC-20 token Dai is part of the MakerDAO application on Ethereum. MakerDAO is a way for users to access credit instruments such as lending/borrowing using Dai, which is designed to be stable. ERC-20 tokens like Dai can be exchanged for any other ERC-20 token or other Ethereum-based standards (i.e., ERC-721), including ETH coins.
Consequently, tokens exist as application-specific tokens within the broader cryptocurrency/blockchain network of a coin, such as Dai, which exists within the Ethereum ecosystem.
Other tokens besides Dai include Maker (MKR), 0x, Augur (REP), Komodo (KMD), and Golem (GNT).
Coins must be exchanged with one another through cryptocurrency exchanges, as they are built on different, non-standardized code protocols. In contrast, tokens on Ethereum (e.g., ERC-20) can be exchanged with one another through internal applications with minimal friction, as they are built on standardized code protocols.
Approaching cryptocurrency markets is a challenging task, but understanding the basic distinction between different types of cryptocurrencies can help you manage risk and make better decisions in a volatile ecosystem.
1. Ethereum (ETH)
The first alternative to Bitcoin is Ethereum (ETH), a decentralized software platform that enables the creation and operation of smart contracts and decentralized applications (dApps) without downtime, fraud, control, or interference from third parties. It is a coin you can invest in with relatively little fear that you will ultimately profit. Ethereum’s goal is to create a decentralized suite of financial products that anyone in the world can freely access, regardless of nationality, ethnicity, or religion. This aspect makes the implications more compelling for those in certain countries, as those without state infrastructure and state identification can gain access to bank accounts, loans, insurance, or various other financial products.
Applications on Ethereum run on Ether, its platform-specific cryptographic token. Ether (ETH) serves as a vehicle for moving around the Ethereum platform and is sought primarily by developers looking to build and run applications within Ethereum, or by investors looking to purchase other digital currencies using Ether. Introduced in 2015, Ether is currently the second-largest digital currency by market capitalization after Bitcoin, although it still lags considerably behind the dominant cryptocurrency.
Trading at approximately $3,150 per ETH as of February 2022, its market capitalization corresponds to just over half of Bitcoin’s market capitalization.
In 2014, Ethereum launched a presale for Ether that received an overwhelming response. This helped usher in the era of ICOs. According to Ethereum, it can be used to “codify, decentralize, secure, and trade just about anything.” Following an attack on the decentralized autonomous organization (DAO) in 2016, Ethereum was split into Ethereum (ETH) and Ethereum Classic (ETC).
In December 2020, Ethereum transitioned its consensus algorithm from proof-of-work (PoW) to proof-of-stake (PoS). This move is intended to allow the Ethereum network to operate with significantly less energy and improved transaction speeds, as well as to create a more deflationary economic environment. PoS allows network participants to “stake” their Ether into the network. This process helps secure the network and process transactions. Those who do so are rewarded with Ether, similar to how an interest-bearing account works. This is an alternative to Bitcoin’s PoW mechanism, through which miners receive additional BTC for processing transactions.
2. Litecoin (LTC)
Litecoin (LTC), launched in 2011, was among the first cryptocurrencies to follow in Bitcoin’s footsteps and has often been referred to as “the silver to Bitcoin’s gold.” It was created by Charlie Lee, an MIT graduate and former Google engineer.
Litecoin is based on an open-source global payment network that is not controlled by any central authority and uses scrypt as its PoW, which can be decoded with the help of consumer-grade central processing units (CPUs). Although Litecoin is similar to Bitcoin in many ways, it has a faster block generation rate and thus offers a faster transaction confirmation time.
In addition to developers, a growing number of merchants are accepting Litecoin. As of February 2022, Litecoin has a market capitalization of $9.3 billion and a per-token value of approximately $135, making it the 21st largest cryptocurrency in the world.
3. Cardano (ADA)
Cardano (ADA) is an “ouroboros proof-of-stake” cryptocurrency created through a research-driven approach by engineers, mathematicians, and cryptography experts. The project was co-founded by Charles Hoskinson, one of the five original co-founders of Ethereum. After some disagreements arose over the direction Ethereum was taking, he departed and later helped create Cardano.
The team behind Cardano built their blockchain through extensive experimentation and peer-reviewed research. The researchers behind the project have authored more than 120 papers on various topics related to blockchain technology. This research forms the backbone of Cardano.
Due to this rigorous process, Cardano appears to stand out among its PoS peers as well as other major cryptocurrencies. Cardano has also been dubbed an “Ethereum killer” because its blockchain is said to be more capable. Nevertheless, Cardano is still in its early stages of development. Although it has surpassed Ethereum with its PoS consensus model, it still has a long way to go in terms of DeFi applications.
Cardano aims to become the world’s financial operating system by establishing DeFi products similar to Ethereum’s, and among other things provides solutions for chain interoperability, voter fraud, and legal contract tracking. As of February 2022, Cardano has the sixth largest market capitalization at $38.5 billion, with one ADA trading at approximately $1.20.
4. Polkadot (DOT)
Polkadot (DOT) is a unique PoS cryptocurrency that aims to deliver interoperability between other blockchains. Its protocol is designed to connect permissioned and permissionless blockchains as well as oracles to allow systems to work together under one roof. The main component of the Polkadot cryptocurrency is its relay chain, which enables the interoperability of different networks. It also allows for parachains, or parallel blockchains with their own native tokens for specific use cases.
Polkadot differs from Ethereum in that rather than creating only dApps on Polkadot, developers can create their own blockchain while also using the security that Polkadot’s chain already has. With Ethereum, developers can create new blockchains, but they must create their own security measures, which can leave new and smaller projects open to attack, as the larger the blockchain, the more security it has. This concept in Polkadot is known as “shared security”.
Polkadot was created by Gavin Wood, another member of the core founding team of the Ethereum project, who had differing views on the future of the project. As of February 2022, Polkadot has a market capitalization of approximately $24.5 billion, with one DOT trading at $15.13.
5. Bitcoin Cash (BCH)
Bitcoin Cash BCH holds an important place in the history of altcoins because it is one of the earliest and most successful “hard forks” of the original Bitcoin. In the world of cryptocurrencies, “forks” are the result of debates and disputes among developers and miners. Due to the decentralized nature of digital currencies, wholesale changes to the code underlying the token or coin in question must be made through general consensus. The mechanism for this process differs depending on the particular cryptocurrency.
When different factions cannot agree, the digital currency sometimes splits, with the original chain remaining true to its original code while the new chain begins life as a new version of the previous coin, complete with changes to its code.
BCH emerged in August 2017 as a result of one of these splits. The debate that led to the creation of BCH was related to the issue of scalability. The Bitcoin network has a block size limit of 1 megabyte (MB). BCH increases the block size from 1 MB to 8 MB, with the idea that larger blocks can contain more transactions, thus increasing transaction speed. It also implements other changes, including the removal of the Segregated Witness protocol, which affects block space.
As of February 2022, BCH has a market capitalization of around $6.5 billion and a value per token of $340.19.
6. Stellar (XLM)
Stellar (XLM) is an open blockchain network designed to provide enterprise solutions by connecting financial institutions for the purposes of large transactions. High-value transactions between banks and investment firms, which typically take several days, involve numerous intermediaries, and cost a great deal of money, can now be conducted almost instantly without intermediaries and cost little or nothing for those performing the transaction.
Although Stellar was positioned as an enterprise blockchain for institutional transactions, it is still an open blockchain that anyone can use. The system allows for cross-border transactions between any currencies. Stellar’s native currency is the Lumen (XLM). The network requires users to hold Lumens in order to conduct transactions on the network.
Stellar was founded by Jed McCaleb, a founding member of Ripple Labs and developer of the Ripple protocol. He eventually left his role at Ripple and went on to co-found the Stellar Development Foundation. Stellar Lumens have a market capitalization of just under $6 billion and were valued at approximately 25 cents as of February 2022.
7. Dogecoin (DOGE)
Dogecoin (DOGE), which some see as the original “memecoin”, caused a stir in 2021 when the price of the coin skyrocketed. The coin, which uses the image of a Shiba Inu as its avatar, is accepted as a form of payment by some major companies, including the Dallas Mavericks, Kronos, and – perhaps – SpaceX, the American space industry manufacturer owned by Elon Musk.
Dogecoin was created in 2013 by two software engineers, Billy Markus and Jackson Palmer. Markus and Palmer reportedly created the coin as a joke and as a commentary on the wild speculation in the cryptocurrency market.
The DOGE price reached a high of approximately $0.74 in the week Musk was scheduled to appear on Saturday Night Live. In February 2022, Dogecoin’s market capitalization was $21.7 billion, with one DOGE valued at approximately 16 cents, making it the 11th largest cryptocurrency.
SHIB
The memecoin inspired by the Shiba Inu (SHIB) memecoin rose to prominence in the fall of 2021 and surpassed Dogecoin’s market capitalization.
8. Binance Coin (BNB)
Binance Coin (BNB) is a utility cryptocurrency that functions as a payment method for fees associated with trading on the Binance Exchange. It is the third largest cryptocurrency by market capitalization. Those who use the token as a payment method on the exchange can trade at a discount.
The Binance Coin blockchain is also the platform on which the Binance decentralized exchange operates. Binance Exchange was founded by Changpeng Zhao and is one of the most widely used exchanges in the world by trading volume.
Binance Coin was originally an ERC-20 token operating on the Ethereum blockchain. It eventually launched its own mainnet. The network uses a PoS consensus model. As of February 2022, Binance Coin has a market capitalization of $73.5 billion, with one BNB valued at $436.24.
9. Tether (USDT)
Tether (USDT) was one of the first and most popular of a group of so-called stablecoins – cryptocurrencies that aim to peg their market value to a currency or other external reference point to reduce volatility. Since most digital currencies, including major ones like Bitcoin, have experienced frequent periods of dramatic volatility, Tether and other stablecoins attempt to smooth out price fluctuations in order to attract users who might otherwise be cautious. Tether’s price is directly tied to the price of the US dollar. The system allows users to more easily make transfers from other cryptocurrencies back into US dollars in a more timely manner than actually converting to conventional currency.
Introduced in 2014, Tether describes itself as a “blockchain-enabled platform… to facilitate digital use of fiat currencies.” This cryptocurrency effectively allows individuals to use blockchain networks and related technologies for transactions in traditional currencies, while minimizing the volatility and complexity often associated with digital currencies.
As of February 2022, Tether is the fourth largest cryptocurrency by market capitalization with a market cap of $78.1 billion and a value per token of (you guessed it!) $1.26.
10. Monero (XMR)
Monero XMR is a secure, private, untraceable currency. This open-source cryptocurrency was launched in April 2014 and quickly generated significant interest among the cryptography community and its enthusiasts. The development of this cryptocurrency is entirely donation-based and community-driven.
Monero launched with a strong emphasis on decentralization and scalability, and enables complete privacy through a special technique called “ring signatures.” With this technique, a group of cryptographic signatures appears, including at least one real participant, but the true one cannot be isolated since they all appear valid.
Due to these exceptional security mechanisms, Monero carries something of a dubious reputation – it has been linked to criminal operations around the world. While it is a prime candidate for anonymously conducting criminal transactions, the privacy inherently associated with Monero is also of benefit to dissidents living under oppressive regimes around the world.
As of February 2022, Monero has a market capitalization of $3.2 billion and a value per token of $178.30.
Why Are Cryptocurrencies Important?
As decentralized platforms, blockchain-based cryptocurrencies allow individuals to engage in peer-to-peer financial transactions or enter into contracts. In both cases, there is no need for a trusted third-party intermediary such as a bank, monetary authority, court, or judge. This has the potential to disrupt the existing financial order and democratize finance. The size of the cryptocurrency space has grown exponentially over the past decade with new innovations and a combined market capitalization of over $1.75 trillion.
Why Are There So Many Cryptocurrencies?
Most of today’s cryptocurrencies derive in one form or another from Bitcoin, which uses open-source, censorship-resistant architecture. This means that anyone can copy and adapt the code and create their own new coin. It also means that anyone is free to join its network or conduct transactions on it.
What are the other important cryptocurrencies?
Many cryptocurrencies have gained significance or promise to do so. Dogecoin, for example, was a joke coin based on memes that became famous when Tesla CEO Elon Musk promoted the token on social media. In addition to Dogecoin and other cryptocurrencies listed above, there are also several other Bitcoin “forks,” such as Bitcoin Gold and Bitcoin SV. Other notable coins include Ripple (XRP), Solana, USD Coin, and Tezos.
Why is Bitcoin still the most important cryptocurrency?
Despite thousands of competitors that have emerged, Bitcoin – the original cryptocurrency – remains the dominant digital currency in terms of usage and economic value. Each coin (BTC) was worth approximately $44,000 in February 2022, with a market capitalization of more than $830 billion.
Investing in cryptocurrencies and other initial coin offerings (ICOs) is highly risky and speculative. Since each individual’s situation is unique, it is always necessary to consult a qualified professional before making any financial decisions. Do you want to enrich your knowledge and become an experienced crypto trader?
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