Crypto tokens vs. crypto coins
A cryptocurrency can be a coin or a token, depending on whether it's the native cryptocurrency for its own blockchain or not. Crypto coins have their own underlying blockchains; crypto tokens don't.
To make it clearer, let's use Ethereum (ETH -1.92%) as an example. Ethereum is a blockchain, and this blockchain's native cryptocurrency is called Ether. Since Ether has its own blockchain, it's considered a crypto coin.
One of the things that made Ethereum special is that it was the first programmable blockchain. Because it's programmable, developers can use it to launch their own cryptocurrencies. These cryptocurrencies operate on Ethereum's blockchain instead of their own, which makes them crypto tokens (the official term for tokens built on Ethereum are ERC-20 tokens).
Earlier cryptocurrencies, such as Bitcoin (BTC -1.13%), didn't have this capability. Ethereum did, helping it to become the second-largest cryptocurrency by market cap.
Because it's much easier to create a token than a coin, there are far more scams and lackluster projects launched using tokens. However, that doesn't mean all tokens are bad investments or that all coins are good ones. There are plenty of tokens with interesting use cases. Of course, there are also crypto coins that have no special use cases or competitive advantages.
Why are crypto tokens important?
Tokens allow developers to create a cryptocurrency without needing to build a blockchain for that cryptocurrency. That's a big deal because it makes the process of developing cryptocurrencies much faster, simpler, and less expensive.
For developers who want to make their own crypto coin, blockchain development is a serious technical undertaking. A blockchain needs to be able to process transactions quickly at a low cost, and it needs to be resistant to attacks so that hackers can't steal crypto.
Building the blockchain isn't the end of the process either. A new crypto coin also needs validators to confirm its transactions. Since cryptocurrencies are decentralized, they rely on people choosing to become validators and lending computing power to the blockchain.
For example, Bitcoin relies on , but that requires people across the world using mining devices. Developers of a new coin also need to think about how they'll attract enough validators to keep the blockchain secure and avoid fraudulent transactions.
