What is the difference between a digital coin and a digital token?
The simplest way to think of this difference is that digital coins have their own unique blockchains. Digital tokens, on the other hand, reside on preexisting blockchains.
If that answer leaves you scratching your head, there is no need to worry. Understanding the distinction between the two beings with knowing what a digital currency really is. One easy way to explain this term is that it is simply a currency that only exists digitally.
A perfect example is bitcoin.
Bitcoin was the first digital currency to scale and has generated widespread interest since its creation in 2009.
This currency, or digital coin, records its transactions on a distributed ledger called the blockchain.
This blockchain, which is spread across many different computers, includes every bitcoin transaction ever made.
In the years since bitcoin was created, many other digital currencies have followed. These alternative digital coins, which are frequently referred to as “altcoins,” also rely on the blockchain to keep a record of their transactions.
Some of these altcoins were created by executing a hard fork of bitcoin, which involved modifying bitcoin’s open-source code to create a new digital currency.
A perfect example is Bitcoin Cash, which came into existence in August 2017. Bitcoin Cash is similar to traditional bitcoin, but its blockchain can handle far more transactions since it has substantially larger blocks.
Other digital coins are created without harnessing bitcoin’s source code. Examples include Ripple, Ether, and Omni.
Digital tokens are different from digital coins. How? They grant the owner the ability to take part in some kind of activity.
These tokens could, for example, permit someone to participate in a decentralized prediction market. Augur, one such prediction market, allows participants to make wagers on the outcome of varying events using REP, its digital token.
Augur is built on top of the Ethereum blockchain. This makes Augur’s REP a perfect example of a digital token, as these tokens are usually built on top of another blockchain.
This differs from digital coins, which have their own, separate blockchains. Bitcoin, Litecoin, Ether, and Ripple, for example, all have their own unique distributed ledger for recording transactions.
Knowledge Is Power
Digital assets can be very complicated, and it is important to perform thorough due diligence before making any investments.
Conducting in-depth research is important, and one good way to stay on top of the latest developments in the world of digital currencies is to subscribe to the Bitcoin Market Journal newsletter.