Coins and Tokens
Did you know there is a difference?
I didn't until recently!
In the vast ever expanding Cryptocurrency space, more and more Coins and Tokens are emerging but do we really know the difference between them?
Find out more below!
This article will cover
- The difference between a Coin and Token
- What types of Tokens are there
- How the courts determine if it's a security
Let's get into it!
The difference between a Coin and a Token
A Coin in basic terms is a currency created on a unique blockchain or built from the Bitcoin open source, original protocol with changes to the code to make it Fork. This allows developers to create their own unique coin that are derived from the bitcoin protocols.
Two Examples of this is: Litecoin and Dogecoin
Not all coins are derived from the Bitcoin's protocol. Some have created their own protocols and blockchain for transactions relating their native coin happen.
Two examples of this is: Ethereum and Ripple
A token operates on top of an exsisting blockchain and are derived from the standard protocols that the specific blockchain has created. Two examples are the ERC20 tokens created on the Ethereum blockchain and the tokens created on the waves platform.
Tokens are quite versatile, there are two general forms of them.
Equity/Security Tokens - Developers are now able to issue security or equity tokens through an ICO. This could be compared to venture capital. The broad classification of security/equity tokens refers to any type of tradeable asset.
Utility Tokens - A utility token provides the holders access to a companies platform or service. This can be in app tokens to loyalty reward points.
The SEC has a test to determine if it's a security!
The Howey Test is a timeless tool used by the SEC to determine if something should be classified as a security and have the same regulations as one. The criteria of the Howey Test is:
1) An investment of money
2) Into a common enterprise
3) With the expectation of profit
4) To come significantly from the efforts of other's
Thanks for reading I hope you enjoyed and learned a thing or ! If I missed anything or forgot to mention something please leave a comment below!