CRYPTO AND ART GALLERIES What's the difference between a coin and a token?
One of the greatest points of confusion within the cryptocurrency metaverse stems from misuse of the words “coin” and “token”. The two refer to very different pieces of blockchain technology, and they both have wide-sweeping implications for the art community.
Both are built on a blockchain. Sometimes the same blockchain.
In the age of NFTs, the distinction between a coin and a token is important.
Compounding the issue are the many tokens that exist alongside coins on the same blockchain. This has led to a lot of incorrect labeling of coins as tokens and vice versa. To simplify things, for the purposes of this tutorial, we’ll identify examples of coins and tokens that exist on the same blockchain.
One type of coin for each blockchain. Many types of tokens.
Ethereum is an infamous blockchain, partially because it’s arguably the best blockchain to build an NFT off of. For this reason, we’ll use it as our focal point.
A coin, in its truest sense, is the native currency of a given blockchain, traded for an agreed upon value. It is fungible, meaning it’s able to replace or be replaced by another identical coin. In other words, all coins within a given cryptocurrency are mutually exchangeable.
In the case of Ethereum, the coin is commonly referred to as Eth. There are currently (as of April, 2021) over 115 million in existence. Eth are created based upon the Ethereum blockchain’s overall protocols (which can be modified with updates). But it’s safe to say that, however many Eth coins there are in existence, there is only one type of Eth coin. It exists in and of itself, the beginning and the end, and has market value based upon that which people assign to it through exchanges.
Therefore, if someone refers to another cryptocurrency as a type of Eth coin, they are incorrect. Eth is the highlander coin of Ethereum (there can only be one!). If you buy 1 Ethereum, what you’ve done is bought 1 Eth coin. Period. End of story.
Enter Tokens, Left Stage...
A token is built on top of a blockchain, and can be assigned monetary value through exchanges, but it also exists to fulfill some sort of utility beyond a strictly monetary one. This utility can take the form of many things through smart contracts.
Smart contracts self-execute terms between buyers and sellers through code. This code exists on the public ledger of the blockchain from which it was written, and as such is trackable and irreversible.
Part of the confusion about when to call something a coin and when to call it a token comes from the fact that tokens CAN be fungible. Many are traded on exchanges alongside the native coin representing the blockchain they were built on top of. Some even refer to themselves as coins, further clouding the distinction.
To go back to Ethereum as our model example, Eth coins are commonly sold on exchanges alongside Binance Coin, which for a long time was a token built on top of the Ethereum network.
In this case, Eth was the coin from the Ethereum blockchain, and Binance Coin was one of many tokens from the Ethereum blockchain. And here’s where it gets weird… The Binance Eth tokens have since been phased out and replaced by Binance’s new blockchain, making the Binance Coin you currently see on exchanges a true “coin”.
If your brain is making a pretzel, don’t worry, you’re keeping up. Tracking the distinction can prove to be thoroughly discombobulating. Especially if you’re just coming into this space for the first time, or only now “peeking under the hood” to see how it all works.
In the above example, something that called itself a “Coin” was actually a token on the Ethereum blockchain. But once the company responsible for the token created its own blockchain, it phased out the Eth token version of itself for a truly native coin on its own blockchain.
How many Ethereum tokens exist, you might ask? Tens of thousands, and the number rises every day. Here’s a constantly updated list if you’re curious. It’s not important that you know ALL of the Ethereum tokens in existence. It’s important that you intellectually understand the difference between a token and a coin. It’s highly likely that only a select number of blockchains will stand the test of time, and only a select number of tokens and coins along with them. But the root ideas that blockchains, coins, and tokens stem from will not change.
The concept is what matters. Once you fully understand the distinction between tokens and coins you will everywhere see the two confused for each other. Come back to these concepts as your fundamental basis for understanding blockchain technology, and you will be able to discern inaccurate information from correct information when it presents itself.
In the case of Ethereum tokens, there are two principle types, called ERC-20 and ERC-721. For more specific information about how these tokens operate, click here. The important distinction between both types for art galleries is that ERC-20 tokens are fungible, while ERC-721 tokens are “Non-Fungible Tokens”, or NFTs. When people refer to NFTs in the media, they are commonly referring to the ERC-721 token in particular.
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