Fundamentals: Coins vs. Tokens

Accounting For Crypto Assets

Coins and tokens form two major types of cryptocurrencies.

Coins are cryptocurrencies with their own native blockchain networks (Ether/ETH, Bitcoin/BTC, and Litecoin/LTC). These coins are the result of years of coding and building a robust and secure blockchain network that requires decentralized computing power to secure. As a result, coins are more difficult to create because they require entire networks to support their use and value proposition. Coins are rewarded to those who supply computing power for processing transactions and are generally used as the fuel for the transactions that are processed on that chain. For example, to execute a transaction on the Ethereum blockchain, you spend ETH as “gas” to fuel the transaction. The amount of gas required to execute the transaction depends on network congestion, the complexity of the action, and the speed necessary for confirmation.

Tokens are cryptocurrencies that are created on top of existing blockchains. Since they do not require the infrastructure backing them, they are much easier to create; therefore, there are exponentially more cryptocurrency tokens than coins. One of the most common types of tokens are NFTS, which can be minted on a multitude of different blockchains including Ethereum, Solana, and Flow, just to name a few. NFTs can act as digital certificates of ownership that can be instantly verified and validated. Because tokens do not have the inherent utility of being gas on their native blockchains, they generally have a utility component that gives them value such as being a rare piece of art or music, gaining the holder access to discounts or events, or possessing a governance component.