Entering the cryptocurrency market can be a difficult task. To better understand the cryptocurrency markets, it is easiest to classify cryptocurrencies into two different categories: coins and tokens.
Coins
Coins refers to any cryptocurrency that has its own autonomous, independent blockchain - like Bitcoin, Litecoin or Ethereum.
In order to be more clearer:
- Bitcoin operates and functions on the Bitcoin blockchain;
- Litecoin operates and functions on the Litecoin blockchain;
- Ethereum operates and functions the Ethereum blockchain, etc.
No additional platforms are required for coins to work. They function on their own independent blockchain, for which they are a native currency. These cryptocurrencies are bootstrapped from scratch, their wide network designed specifically to achieve a certain goal.
You may also have heard of Altcoins. Basically, we call Altcoins any coins that are alternatives to Bitcoin.
Tokens
A token is a cryptocurrency created on top of an existing blockchain or protocol. Usually tokens represent some kind of asset or function (utility).
The functions of tokens are much broader than just using them as the native currency of the protocol. Tokens can be used to represent a share of ownership of a company or an object of real estate, give voting rights, and have many other useful applications beyond speculative trading and means of exchange.
Tokens are the unique extras of broader smart contract platforms such as Ethereum, which allow users to create, issue and manage tokens that are derived from the primary blockchain.
In fact, thanks to the creation and facilitation of smart contracts, the most common blockchain token platform are Ethereum. Tokens that are built on the Ethereum platform are known as ERC-20 tokens.