DeFi Tokens vs Coins What is the Difference?

Last Updated on July 28, 2023 by Nirav Patel

The AAVE is an open-source DeFi lending protocol that allows anyone to loan or borrow crypto without an intermediary. As a lender, you can deposit funds — which are allocated into a smart contract — where you can earn interest based on how Aave is performing in the market. Making a deposit means you can also borrow by using your deposit as collateral.

For example, Litecoin was designed by former Google engineer Charlie Lee as a “lite version of Bitcoin.” The altcoin markets are characterized for their volatility and are highly speculative investments. Money market accounts are similar to savings accounts, but offer some checking features as well. This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction. Tokens and coins each have advantages and disadvantages, and they both have a place within the cryptocurrency ecosystem.

notable altcoins

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Examples of these coins include Ethereum, Ripple, Omni, Bitshares, NEO, Waves and Counterparty. It launched in 2009, whereas the first altcoins came out in 2011, and new altcoins are released regularly. Their name comes from the fact that they’re alternatives to Bitcoin and traditional fiat money. There are different types of tokens all made with different purposes in mind. And since this is the blockchain where there are no universal standards as yet, there can be many names for the same thing. Doug is a Chartered Alternative Investment Analyst who spent more than 20 years as a derivatives market maker and asset manager before “reincarnating” as a financial media professional a decade ago.

Market caps of the top altcoins are on the rise.

This EVM-compatible blockchain provides a Layer-2 scaling solution for Ethereum, addressing scalability and congestion issues. Its native cryptocurrency, MATIC, is used to pay gas fees on polygons and has a market cap of 6.8 billion dollars. Blockchain technology’s decentralization and token-based economics provide room for innovation, leading to the https://xcritical.com/blog/cryptocurrencies-vs-tokens-differences/ development of various cryptocurrencies. Examples of alternative currencies that are now trading in the market include Ethereum, BNB, and Matic. There are various types of altcoins, including utility tokens, security tokens, and meme coins. Altcoin is the term given to describe alternative digital assets, such as a coin or token that is not Bitcoin.

The term “market capitalisation” or “market cap” is an important metric in the evaluation of the market value of a cryptocurrency. This figure is indicated by a cryptocurrency’s current market price times the total number of coins in the market . If you’re looking to diversify within https://xcritical.com/ the cryptocurrency market, altcoins can be less expensive than Bitcoin. However, the cryptocurrency market, regardless of the type of coin, is young and volatile. Cryptocurrency is still finding its role in the global economy, so it’s best to approach all cryptocurrencies cautiously.

Pros and Cons of Altcoins

Most stablecoins, such as the significant ones, are tied to the value of the US dollar and aim to replicate its price fluctuations. The issuer of the coin usually takes measures to fix any changes in value. Stablecoins are primarily used for saving or sending money, and people typically don’t consider them as cryptocurrency investments.

What truly defines a word or changes its definition is its usage. When you read or hear crypto-speak being slung around, pay attention to the context in which terms are used. As with any other emerging technology, crypto will eventually mature to the point where we’ll agree on a common language. Bitcoin, which was the first coin to take off, was invented by Satoshi Nakomoto to replace traditional currency and provide an authority-free method of exchanging money. Another example is Jack Dorsey selling his first tweet as an NFT for $2.9 million on auction.

Dogecoin – the fun cryptocurrency

A stablecoin is a cryptocurrency with a value pegged to another asset’s price. If functioning correctly, a stablecoin pegged to the U.S. dollar should always be valued at $1. The leading altcoin today is Ethereum, which has a market cap of $150 billion to Bitcoin’s $325 billion. Companies may use security tokens to raise capital by selling equity tokens.

• As of June 2022, there are slightly more than 19 million Bitcoin tokens in circulation, against a capped limit of 21 million.
• A cryptocurrency “coin” is a currency with its own network, whereas a “token” is dependent on another network .
• Over time, miners have developed computer hardware with the sole function of processing the PoW consensus algorithm.
• “Altcoin” is a combination of the two words “alternative” and “coin.” It is generally used to include all cryptocurrencies and tokens that are not Bitcoin.
• A token differs from a coin in the way it’s constructed within the blockchain of an existing coin, like Bitcoin or Ethereum.

Litecoin uses a different proof-of-work consensus mechanism than Bitcoin, called Scrypt (pronounced es-crypt), which is less energy-intensive and quicker than Bitcoin’s SHA-256 PoW consensus mechanism. Many altcoins are used within their respective blockchains to accomplish something, such as ether, which is used in Ethereum to pay transaction fees. Some developers have created forks of Bitcoin and re-emerged as an attempt to compete with Bitcoin as a payment method, such as Bitcoin Cash. Governance tokens are cryptocurrencies that give holders voting rights to help shape the future of the project. In most cases, these tokens allow you to create and vote on proposals related to the cryptocurrency. This helps make the cryptocurrency a decentralized project since all the holders have a say, and decisions aren’t made by one central authority.

Coins vs Tokens: Categorization of Cryptocurrencies

As the name implies, payment tokens are designed to be used as currency—to exchange value between parties. It is possible for an altcoin to fall into more than one category, such as TerraUSD, which is a stablecoin and utility token. Dogecoin, the popular meme coin, was apparently created as somewhat of a joke. It forked from Litecoin, which itself forked from Bitcoin in 2011. Whatever the intent behind its creation, it was still designed to be a digital payment method. The term altcoin refers to all cryptocurrencies other than Bitcoin .

Ripple is a global money transfer network used by financial services companies. XRP is the crypto that was designed to work on the Ripple network. You can buy XRP as an investment, as a coin to exchange for other cryptocurrencies, or as a way to finance transactions on Ripple. This decentralized oracle provides smart contracts with off-chain data through a peer-to-peer network.