Coins vs Tokens
on Jun 22, 2018
Oh hey there, welcome to the super awesome shitcoins newsletter.
When we mentioned that you won’t find a community like us anywhere else, we weren’t joking. We will be sending a mix of topics, giveaways, news, and shitcoin speculations over time.
Today is topic #1 and we are going to learn about a shitload of different shit.
Coins vs Tokens (and money)
We see a lot of n00bs (and ‘experts’) mixing up the differences between coins and tokens...so we figured we would sort this out, and also get a little philosophical about what money actually is.
Wtf is a coin?
Remember that you do not need a cryptocurrency to run a decentralized network...distributed networks have been around since the 80’s. One major catalyst for the cryptocurrency revolution, are the cryptocurrencies themselves.
Follow this logic train:
- Contributing to a decentralized network requires leaving the application which you are contributing to open on your computer, say BTC’s blockchain.
- This takes up some of your computer’s power, which actually affects your electricity bill.
- To make these networks robust, requires a shitton of computing power which takes a shitton of MONEEYY.
As a result, those contributing to the networks get rewarded with a cryptocurrency to compensate for their electricity costs. Yayy!
The cryptocurrency financially incentivizes people to contribute to these networks….
Get it? This shit wouldn’t be popular if there was no financial incentive (potential for moon lambos).
So, let’s define wtf a coin actually is. A coin is the native cryptocurrency to the network. These coins are used to pay for fees when sending transactions, and rewarded to those helping to keep the network alive. You f***n need them.
Wtf is a token?
Tokens are generally IOU’s, and we see this shit everywhere in the real world, such as poker chips, bonds, store points, and Chuck-E-Cheese tokens. And yes..they have other uses, but whatever. They can represent really anything that is fungible or tradeable. They also require a substrate, they represent something.
We all know about Ethereum (if you don’t, then f*** off). It is a platform which allows people to launch applications on top of it. Ether (ETH), is Ethereum’s native currency. This is the currency used to reward miners, pay fees, and is an integral incentive for keeping the network alive.
But, when someone launches an application on the Ethereum network, they create a token, which can be used in their app. This token is issued to buyers directly, you can only buy them. You cannot mine these tokens and they are NOT native or integral to the Ethereum blockchain at all. There is not 1 token on Ethereum that you can mine. You generally use these tokens to use the application, pay for things in the app, and can sell or redeem them for another crypto or USD/fiat.
Let’s say there is a flappy bird type of game launched on the Ethereum network, and they have a shop. To buy their shit you need their Flappy token...or you can sell your Flappy tokens for Ethereum.
So...that’s the difference between a coin and a token. A coin is technically and financially integral to the network. A token is not, and is only important to the application it was made for. Btw, a token can be important...if an application gets super popular, then the token will have practical value.
Wtf is money?
Let’s get a little deeper now. Wtf is money and what is its reason for existing (utility). Money is meant to act as a proxy to represent effort. Before fiat backed money or precious metals were used, we bet you that people would ‘trade’ random things for work.
So...let’s say that John is a poor gardener and you are a rich asshole. John goes to knock on your door one day and offers to keep your garden in good condition. In return, you offer him 5 meals of chicken each week. (prick)
John understands that he is putting in X hours of work for you every week, and your chicken dinner rewards make sense to him, somehow. So, he accepts, and you both move forward with the agreement. (<-- we made this history up to prove a point, maybe we are right, idk).
Fast forward many iterations and we arrive at fiat. Fiat meaning government backed currencies.
We normalize the ‘value’ of our country’s ‘dollar’ no matter where we live. In the US, we have a very strong intuition for the value of one dollar bill. If we try to buy a can of soda, and they say $7, we know that is too high. So, ultimately, a dollar is like gas in Ethereum, it represents some sort of value, and the ‘amount’ of value a dollar is worth can change. This change in value is represented through the medium of a dollar bill. So depending on how much the value of a dollar fluctuates, affects how far one dollar bill will get you.
Is there a difference between a dollar and a dollar bill?
Some may argue that 1 dollar bill is a token because it has a substrate of a ‘dollar’ or unit of effort. As mentioned, a token requires a substrate. Also, USD is issued by an issuer, much like tokens are.
On the other hand, USD is currently required to keep the economy running, much like a native cryptocurrency.
Hope this got your head thinking, and you learned some shit. If you want to hear about any other topics just tweet at us.
Chat soon - and stay tuned for more!
- Mike and Aaron
A shitty thanks to:
+ a shitton of general googling and involvement :)