In the beginning, there were just coins, BTC, specifically. To transfer coins from one user to another, they simply sent it to the other person, and the fee, if any, would be in BTC. As other networks sprung up, the same applied to them. Their names even kept the “coin” component of Bitcoin, such as Namecoin, and eventually Litecoin and Dogecoin, amongst many others.

Colored Coins

The year 2013, though filled with many other network launches that were largely copies with minimal modifications of Bitcoin and Litecoin, had some special projects come up. Mastercoin (now known as Omni), a protocol proposed to be built on top of the Bitcoin network, was conceptualized and launched the first ever Initial Coin Offering (ICO), though it wasn’t called that at the time. Mastercoin was unique compared to most other coins however, as it allowed for special coins then known as “Colored Coins”, essentially coins on the same network, but representing something else. These are now what are known as tokens. It was fairly revolutionary at the time, as it was commonly thought that if a coin was to be created, a separate network would need to be set up. Since they would be on the same network, transaction fees for anything involving a token would be of the coin of the network itself and not the token as it “lives” on it. This essentially is the key difference between a token and a coin.

Emergence

However, Mastercoin was not the first to launch a colored coin platform. In 2014, platforms like Nxt and Counterparty (XCP) launched the ability to create these colored coins. On Nxt, they were known as Assets and were even tradable on the exchange right on the network itself. Early assets represented a wide range of things, such as memberships to clubs and societies, vouchers, and profit-sharing rights for some ventures. It was also in 2014 that Ethereum was announced. Launching in 2015 with the popular ERC-20 standard proposed in November 2015 by Fabian Vogelsteller, it soon became the standard for token creations on top of the Ethereum network, and soon for most of the cryptocurrency space where the tokens were not limited to representation of something but were programmable, if desired by the creator. Augur is one notable example, where users are able to place bets against each other that are resolved on the network itself once the conditions have been met.

Creating a Coin vs Creating a Token

In general, creating a coin is much more complicated than creating a token. With the former, one has to set up the network itself, including figuring out which consensus algorithm to use, deciding whether to utilize the source code of existing platforms, and many others. With the latter, one would only need to look into the documentation for creating tokens on the network and not worry, at least not worry too much, about the upkeep of the network. However, with creating a coin and setting up the network, one would have much more control over all aspects of how the coin would work. In the end, it depends on the use case. In most cases however, when a project necessitates the creation of a coin or a token, especially when only fairly basic features are needed, the latter usually makes the most sense. This is also especially true if a wider audience is desired as it’s much easier to tap into an existing community on a running network than it is to start from scratch.

Conclusion

Knowing the difference between a token and a coin is important for both projects and users. It’s also important to know what network a token is on, in order to better understand how the token would operate itself, such as for users in cases of figuring out what wallet can be used. If you have any further questions, please feel free to ask me on Twitter or at the upcoming Boerse Express event on September 19, 2019 where I will be a speaker.