Tokens and coins refer to totally different concepts, but unfortunately, they are easily confused by new users and even experts who use the names interchangeably. So, what exactly is the significant difference between the two and why are they perceived as the same. Based on the fact that tokens and coins are different, would it be right to say that the value of tokens and coins are affected by the same factors? The answer is yes, and the reason is they are both cryptos, and that is also the reason they are perceived as the same.
Difference between coin and tokens
Coins are digital currencies that are produced using encryption strategies that maintain values after a while. Coins share similar characteristics with fiat currencies; they are divisible, portable, durable, acceptable, and limited in supply but not tangible.
There are different types of tokens. These could be Currency tokens or in other name cryptocurrencies, unity tokens, and security tokens. The focus of this write up is currency tokens.
They are produced in an existing project ecosystem. Anyone has the chance to produce their token with the hope that the intrinsic value will increase eventually. They are a virtual currency that is issued by the project and can be adopted as a payment option within the ecosystem. Tokens may carry out certain functions like act as digital assets, provide access to the functions of the project or represent the organization’s share within the ecosystem.
A real-life example of a token is a gift card. For example, an Amazon gift card can be used to buy stuff within the Amazon store. Another example is a concert ticket that can be used in certain places like a restaurant, pay concert ticket bills, etc.
Valuing tokens and coins is based on taking a look at the factors that can affect their value.
In order for people to store a coin, their worth must be high; it must have a high function to inspire people to keep it. A coin utility is strongly connected to its worth-while, the value of currency tokens is connected to the project technology and performance, for example, Bitcoin. The coin is a strongly established digital currency and its value is indeed very high. The reason for its high value is because the coins are accepted and used for virtually all kinds of transactions. Currency token value is based on project performance. Exchange tokens like BEST is a great example as it provides utility to the Bitpanda platform.
Forces of supply and demand
A situation where there is a limited supply of a coin or token can affect their value. When there is a limited supply, scarcity will set in. In economics, scarcity is a situation where there is an increase in demand and low supply. Some coins are made to be scarce through conscious actions like a “burning” system, which is just the act of eliminating a good portion of the coin or token in supply; the burning mechanism causes scarcity and ultimately increases the value of the cryptocurrency.
Value-based on perception
How do people rate the performance and function of a coin? Crypto is just as valuable as how people consider them to be. Therefore, any project that attains their milestones frequently will have increased perception which will cause the price to increase.
Any internal or external activities like partnerships and collaboration with reputable organizations will increase people’s perception and cause prices to increase because the demand for that coin will also increase.
Tokens’ value is affected by the expected growth potential. If a project looks highly promising, the crypto token will increase in value because there will be a high demand for it.
Like fiat currency, cryptocurrency value can be influenced by factors like forces of demand and supply, scarcity, utility, etc. Coins and tokens are not the same but their values can be affected by the same factors.