It’s common to see media coverage of crypto alternating between terms like ‘cryptocurrencies’, and ‘tokens’ as if they’re the same thing… but they’re not.
So what’s the difference between the two? Essentially, cryptocurrencies are blockchain-based, cryptographically secured assets that are intended to be used for financial transactions or as stores of financial value. Crypto tokens, on the other hand, are assets supported by a blockchain platform that are used for a range of other purposes: loyalty points tracking, smart contract enablement, subscription or membership services, etc.
Investopedia, for example, says cryptocurrencies “refer to coins that fulfil characteristics of standard paper-based money. The characteristics are its function as a store of value, unit of account, and fungibility (or the ability to be used regardless of its history of transactions).” Tokens, by contrast, “are broader representations of a blockchain’s value. That value is manifested across a diverse range, from cryptocurrencies to loyalty points to, even, assets built on the blockchain.”
The Blockchain Council describes three types of cryptocurrencies: transactional coins used for payments (such as Nano and IOTA), store-of-value coins treated more as investments (i.e., Bitcoin or MakerDAO) and privacy-focused currencies like Monero, which are “ideal for individuals who care about their privacy and do not want other organizations to track how they spend their wealth”.
Tokens, on the other hand, are identified by their utility for things beyond financial transactions, the council says. It divides tokens into five categories: usage (providing access to specific services), work (ensuring the right to participate in a platform), hybrid (which combine usage and work capabilities), network (supporting payments only on a specific network) and equity (similar to stocks). For instance, Civic’s token is usage-based and MakerDAO’s MKR token is work-based, while Ethereum’s Ether is an example of a hybrid token. Network tokens include 0x, and equity tokens include the ICONOMI platform’s ICN.
CoinMarketCap keeps the distinctions simpler on its FAQ. A coin, it says, is “a cryptocurrency that can operate independently,” while a token is “a cryptocurrency that depends on another cryptocurrency as a platform to operate”.
Wikipedia does the same, noting, “A blockchain account can provide functions other than making payments, for example in decentralized applications or smart contracts. In this case, the units or coins are sometimes referred to as crypto tokens (or cryptotokens).”
Finally, because analogies are always helpful, here’s how fintech writer Matthew North describes the difference between cryptocurrencies and tokens on Quora:
“When you deposit $2 in a pinball machine, you exchange $2 for some pin balls (tokens) to play the game. Those tokens only have value in the pinball economy. You can’t use those tokens to pay for a different game, but you could if you had some coins.
“So, tokens are abstractions of value, married to specific platforms.
“While cryptocurrencies are universal stores of value and mediums of exchange.”