The words coin and token, as well as their French equivalents, piece and token, are very common terms in the world of cryptocurrencies to designate the different digital units of account that can be encountered and are often used interchangeably. However, it is possible to make a more or less clear distinction between the two concepts, and this is what we are going to discover today.
Etymology and Meaning of Terms
Before finding what distinction it is possible to make between these terms, we must look at where they come from and what semantic nuances can be drawn from their origin.
Let’s start with the English word “coin”, which has the same etymological origin as the French word “coin”. The word comes from the Latin cuneus, which designates a kind of tool of hard material (iron or other) used to split wood. Its prismatic shape gave in French the main meaning of the word “corner”, that is to say, a place where there is a salient angle.
wood splitting wedge
If, in both languages, the word “coin” then designated the tool used to mark metal parts, it was only in English that the tool gave its name to the product. From the 14th century, the coin, therefore, designated itself a coin made of metal and which most often had the shape of a disc and which could have a hole in it.
Coins to mint coins
The French word ” piece ” has a different etymology since it comes from the reconstituted Gaulish *pettia, deduced from the Breton pezh and the Welsh peth. In French, the word designates the part of a set considered as a whole and is found in the expressions “piece of meat”, “piece of archive”, “piece of fabric”, “pieces of the house”, etc. This is why we speak of coins in general, and simply of coins when there is no ambiguity. However, the word “piece” retains a broader meaning than the word coin.
Let’s continue with the word “ token ”, which has no French etymological equivalent because it is derived from the Anglo-Saxon tācn, meaning symbol, sign or proof. It was not until the 16th century that the word began to come close to the word coin by designating a marked piece of metal. Today it designates a stamped piece of metal or plastic, which can be used as a money substitute or as a voucher for a good or service.
Italian phone token
In French, the term closest to the token is the word “jeton”, which is derived from the word “jet”, to which the suffix -on has been added. It appeared with a botanical meaning during the 14th century and then designated a new shoot, a meaning which is still found today in the word “offspring”. He then designated a piece of metal, ivory or other material, flat and usually round, which was used to calculate sums. In the 19th century, the token acquired the same meaning as the token, by constituting an instrument of representation to symbolize a voucher for a good or service: one thus found attendance tokens, telephone tokens, Masonic tokens, etc. Today chips are used for gambling (“casino chips”) or shopping carts.
The Confusing Use in the World of Crypto-assets
These terms have been taken over to designate digital units of account in the world of cryptocurrencies and other crypto-assets. However, their use is somewhat confusing: as we said at the beginning of the article, the terms coin (coin) and token (token) are quite easily interchangeable. For example, some will speak of Initial Coin Offering to designate the pre-sale of digital units that they will subsequently call tokens.
The word coin, in particular, has acquired several meanings. First of all, it can designate money in the general sense (as we speak of the euro) or a unit of this currency (as we say, “one euro”). This is particularly striking in the case of bitcoin: in this way, we can sometimes say that we “used bitcoin to pay”, and sometimes that we “paid two bitcoins to buy a car”. In addition, the words “piece”, “ token ”, or “token” are also sometimes used in the same context.
Then, a coin or coin can also have a technical meaning and designate a UTXO, a cryptocurrency coin of an amount defined by a transaction: “a coin of 12,546 satoshis”. This is the meaning that the word has in the Electrum wallet, for example.
Finally, to add to the confusion, a corner can, by metonymy, designate the entire system that supports it. This confusion is reinforced by the fact that the first cryptocurrency protocols had the same name as their unit of account: Bitcoin and bitcoin, Litecoin and litecoin, Dogecoin and dogecoin, etc.
A Distinction Between Coins and Tokens
A certain formalism has appeared more recently in the world of crypto-assets: a distinction between native units, then called coins, and non-native units, then called tokens. This distinction has been democratized (rather awkwardly) by the CoinMarketCap website, which gives the definition of the two terms in its lexicon:
“A coin is a cryptocurrency that can operate independently. A token is a digital unit designed with utility in mind, providing access to and authorizing the use of a larger crypto-economic system. It does not have to be a store of value in itself, but is made so that an application can develop around it.”
According to this distinction, a coin (or a piece in French) is a native unit of a crypto-economic system, that is to say, a unit born at the same time whose existence is essential to the survival of the system in question. In this category, we will meet the bitcoin, which serves as the basis for Bitcoin by being used to pay transaction fees and rewarding miners who put their computing power into play to secure the network. We will also find ether, which serves as fuel for the Ethereum autonomous contracts platform. Finally, the ripple (or XRP) will be used to pay the fees on the eponymous network.
Note that it is possible for a crypto-economic system to depend on several units of account, and therefore there can be several coins for a single system. Thus, the Neo protocol has two native units:
- Neo (formerly known as AntShares), which represents a share giving the right to participate in the consensus (DPoS), to vote in the internal governance system and to receive dividends in the form of neogas;
- Neogas or gas (formerly called AntCoin ), which serves as fuel for the platform by paying transaction fees, and which should not be confused with Ethereum gas which works differently.
On the other side of the distinction, we find the token (or token in French) which is, therefore, a non-native digital unit evolving on the register of a protocol which does not depend on it to function. As you may know, it is indeed possible for users to issue tokens on an existing blockchain! Thus, we will find in the category the Tether USD (USDT), which exists on the Bitcoin chain thanks to the Omni metaprotocol, the Basic Attention Token, which is an ERC-20 token evolving on Ethereum, the cryptokitties, which are non-fungible type ERC-721which also exist on Ethereum, the BitTorrent Token which is a TRC-10 token from the TRON blockchain, or the Spice Token (SPICE) which is traded on Bitcoin Cash.
These non-native tokens are usually issued to have specific roles:
- A token can be used as part of a decentralized application (iExec’s RLC or Augur’s reputation token).
- It can serve as a store of value by representing a real-world asset (stable coins like Dai, USDC, and Tether Gold).
- It can have the role of a security (share, bond, share in a SIIC, etc.) either by representing an existing security or by being the security itself (most often issued during an STO). For example, a Maker token (MKR) is an action of the DAO of the same name.
The limits of this distinction
However, this coin-token distinction is far from perfect and has flaws that we will examine here.
Let’s start by saying that CoinMarketCap does not apply its distinction consistently. First, in the Neo system, the coin tag should be assigned to the two units inherent to the protocol (the neo and the neogas), but CoinMarketCap classifies the neogas as a token for some reason.
Second, according to its own lexicon, the site claims that a coin is “a cryptocurrency that can operate independently”. However, it categorizes both OMNI and XCP (Counterparty) tokens as coins at the same time, whereas neither can exist outside of Bitcoin, and Bitcoin can absolutely exist without them.
Then, even if we systematize this kind of distinction, we quickly realize that it does not necessarily correspond to the etymological origin of the terms and, therefore, to the meaning we have of these terms. In everyday language, the coin and the piece have a monetary meaning, which the terms token and “jeton” do not have. Thus, a coin will be used as an intermediary of exchange to obtain goods and services and will derive its value from this utility.
Conversely, the token and the token have a symbolic meaning: they represent something that is not there. Tokens are what used to be called mereaux: vouchers for something, tokens of recognition or passes. They derive their value not from their monetary qualities but from the physical or digital object they represent.
The distinction according to “nativity” is therefore contrary to the common meaning given to these terms, and it is possible to ask questions about the category of certain numerical units:
- Where to classify ether, the unit of account of Ethereum, whose main role is not to be a currency but a fuel for the platform? By some logic, it should be classified as a utility token used to run an autonomous contract platform. However, its monetary role is factually far from zero, and it seems that any basic unit of a decentralized system is bound to serve as currency to some degree. This thinking holds for classic ether, tez, EOS, tronix, Binance Coin, etc.
- What about a stable coin like the Dai, which the classification considers a token? The latter is issued and traded on Ethereum but has an essentially monetary role, particularly for its quality as a store of value. Additionally, unlike other stablecoins like USDT and USDC, its value is determined algorithmically: Dai is not a representation of a claim on a trusted third party (like Tether or Circle). Thus, one might as well classify it as a wedge.
- What about neo, which intervenes in the consensus of the Neo platform but does not directly constitute its fuel? Only the neogas should indeed be considered as a corner, and all the more so since the neo is indivisible.
Thus, if the current coin-token distinction has its merits, we must nevertheless ask ourselves the question of its relevance, which does not take into account the role of the digital units themselves. Be that as it may, the meaning of these terms is still not really determined today, and the ecosystem is changing so quickly that the conceptions we have of it are bound to be turned upside down over time.