In the “crypto” world, there are two types of system – currencies and platforms.
Crypto “currencies” (such as Bitcoin) use “coins”. The platforms use “tokens”. The difference isn’t that important for users, but from a developer perspective is actually a pretty big deal…
The key difference
The key difference between the “currency” and “platform” is the key difference between the “coin” and “token” – a “token” is used as a means of utilization on top of another platform, whilst the “coin” is used entirely in its own capacity.
In other words, whilst the world has inundated itself with Bitcoin, there has been another play at work – the “crypto” platform.
Platforms are designed in such a way that they facilitate the use of other systems which work on top of their infrastructure. Windows, iOS and other “operating systems” are very good examples – designed to provide users with the ability to run other applications without the need to build out their own infrastructure themselves.
The important thing to realize here is that whilst all crypto systems work in the same way (decentralized), they are built around different principles (and thus sets of functionality).
This means that if you’re looking at “buying”, or “investing” into a particular system, it is going to be important to consider what you’re actually getting involved with. “Tokens” don’t really have the same value as “Tokens” (they’re used differently) – so the idea that you’re going to buy some and they’ll be worth more without you doing anything is incorrect.
This tutorial is going to explore how both types of system work…
How “Crypto” Works…
Ultimately, all the “crypto” systems work in the same way…
They provide access to a transaction-based network of decentralized servers operated by people around the world. The “token” that is offered is the way in which you’re able to utilize the computing power & transactability these servers provide.
As demonstrated above, the key indicator that a system is a “platform” will come in the form of its “token supply”. The platforms have a large supply of tokens because they’re used as a base-layer for other applications. “Coins” generally have a very small number of tokens because they want to retain strong value in each of them.
In either case, the “price” of each token is reflected on the number of tokens created divided by the number of people who have bought them. To this end, if you’re looking at the variety of “platforms” and trying to compare them to “currencies”, you’ll find that the currencies (which are mostly derivatives of Bitcoin) are typically more “deep” but less “broad”.
The reason this is important is because when you want to look at how the systems work, you’re basically looking at a “blockchain” database (decentralized) which performs transactions. The more transactions that are performed by other users on the network (IE in a platform capacity), the lower each individual token is worth.
Coins Are For Transactions, Tokens Are For Functionality
Ultimately, the difference between the two is that “coins” (such as Bitcoin) are used to facilitate transactions between two or more users on a network.
Tokens are used to create “functionality” for users, allowing them to perform other things with other systems on the network. This is why most of the “platforms” use tokens, as they are not really providing the functionality themselves – but the underlying ability for other systems to provide it.