📝 The ‘Understanding The World of Crypto’ Series - How Tokens, Coins and Blockchain Protocols Relate to Each Other 📝

Hi all,

Welcome to the first post of the ‘Understanding The World of Crypto’ series!

The main goal of this series is to educate others about the most exciting technological revolution that we are currently part of: cryptocurrencies and blockchain technology.

I try to keep these posts clear and short. If you would like to help educate others about cryptocurrencies and blockchain, feel free to resteem this post to your followers ;-)

Alright, let’s get started!

Tokens, coins, protocols, cryptocurrencies, blockchains...what?!

Before we get to the details, let’s be clear on what technology is. A technology is an idea or foundational concept that applies science and knowledge in a practical way. It involves the use of science and knowledge in a particular field to develop innovative methods and techniques to solve problems.

The foundational concept at the core of the crypto space is blockchain technology. A blockchain is a decentralized and distributed digital ledger that is used to record transactions across many computers so that the record cannot be altered retroactively without the alteration of all subsequent blocks and the collusion of the network. Although there are examples of projects within the space that use a different technology than blockchains (e.g. IOTA with its Tangle technology), I will not go into those in this article.

Definitions & examples from the world of crypto

A short list of definitions and examples.

Protocol
A protocol is a collection of behavioural rules which is used by the participants in a network. This includes rules about how to communicate and exchange information with others.
Examples: Bitcoin, Ethereum, Waves, Lisk, Neo, Ripple.

Coin
A coin, also known as cryptocurrency, is the native digital asset of a specific blockchain protocol. A coin is a digital currency and works a medium of exchange using cryptography to secure the transactions and verify the transfer of assets. It resides at the core level of the protocol and is defined by the protocol.
Examples: BTC, ETH, WAVES, LISK, NEO, XRP.

Token
Tokens are created and hosted on top of a certain blockchain protocol. Currently the most popular blockchain protocol used for token creation is Ethereum. Tokens can represent basically anything: in-game items, points, commodities, certificates, shares, voting rights etc. Tokens are not defined by the protocol, but by smart contracts.
Examples: BNT (Bancor on Ethereum), ICN (Iconomi on Ethereum), WGR (Wagerr on Waves), WCT (Waves Community Token on Waves), RPX (Red Pulse on Neo), GAS (Gas on Neo).

The above image gives a clear overview of how the terms relate to each other. The words token, coin and cryptocurrency are often used interchangeably, which is incorrect and you now know why.

I hope you found the article useful and that things are more clear now. Feel free to let me know in the comments if something is not clear yet or is different from what you have read elsewhere :-)

Sources

Stephen Armstrong (Wired) - https://www.wired.co.uk/article/unlock-the-blockchain
Merriam Webster Dictionary - https://www.merriam-webster.com/dictionary/technology
Jabba-Q (Satoshiwatch) - https://satoshiwatch.com/coins/iota/in-depth/iota-dag-tangle/
Philip (Coinstaker) - https://www.coinstaker.com/crypto-token/
Aziz (Master The Crypto) - https://masterthecrypto.com/differences-between-cryptocurrency-coins-and-tokens/
Ivan on Tech (Youtube video)
Misha Benoliel (Medium) - https://medium.com/startup-grind/understanding-the-difference-between-coins-utility-tokens-and-tokenized-securities-a6522655fb91

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Disclaimer: I am not a financial advisor, trader or developer. I am just a blockchain & cryptocurrencies enthusiast. Make sure you do your own research, draw your own conclusions and do not invest any money that you cannot afford to lose.