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Coins vs tokens: what’s the difference?
The terms “coin” and “token” are often used interchangeably, but there are a few key differences to be aware of.
Don't invest unless you're prepared to lose all the money you invest. This is a high-risk investment and you should not expect to be protected if something goes wrong. Take 2 mins to learn more.
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Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.
What are the key risks?
1. You could lose all the money you invest
- The performance of most cryptoassets can be highly volatile, with their value dropping as quickly as it can rise. You should be prepared to lose all the money you invest in cryptoassets.
- The cryptoasset market is largely unregulated. There is a risk of losing money or any cryptoassets you purchase due to risks such as cyber-attacks, financial crime and firm failure.
2. You should not expect to be protected if something goes wrong
- The Financial Services Compensation Scheme (FSCS) doesn't protect this type of investment because it's not a 'specified investment' under the UK regulatory regime – in other words, this type of investment isn't recognised as the sort of investment that the FSCS can protect. Learn more by using the FSCS investment protection checker.
- The Financial Ombudsman Service (FOS) will not be able to consider complaints related to this firm or Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA regulated firm, FOS may be able to consider it. Learn more about FOS protection here.
3. You may not be able to sell your investment when you want to
- There is no guarantee that investments in cryptoassets can be easily sold at any given time. The ability to sell a cryptoasset depends on various factors, including the supply and demand in the market at that time.
- Operational failings such as technology outages, cyber-attacks and comingling of funds could cause unwanted delay and you may be unable to sell your cryptoassets at the time you want.
4. Cryptoasset investments can be complex
- Investments in cryptoassets can be complex, making it difficult to understand the risks associated with the investment.
- You should do your own research before investing. If something sounds too good to be true, it probably is.
5. Don't put all your eggs in one basket
- Putting all your money into a single type of investment is risky. Spreading your money across different investments makes you less dependent on any one to do well.
- A good rule of thumb is not to invest more than 10% of your money in high-risk investments.
If you are interested in learning more about how to protect yourself, visit the FCA's website here.
For further information about cryptoassets, visit the FCA's website here.
If you’re new to the world of cryptocurrency, you’ll no doubt have found that there’s a whole lot of jargon and technical terminology to try and wrap your head around. Two terms that can be the source of much confusion are “coin” and “token.” Both of these words can be used to describe units of blockchain value and there are plenty of similarities between the two.
However, there are some important differences as well, which we’ll look at in this article.
What is a crypto coin?
In general terms, a cryptocurrency coin is just that – an encrypted digital currency meant to be used as a form of payment. A coin is a unit of value that operates on its own blockchain, independently of any other platform. It can be used to store value and pay for services, in much the same way that you would use physical money.
Bitcoin (BTC) is easily the best-known cryptocurrency coin around the world, but it’s far from the only coin available. In fact, there are thousands of crypto coins in existence. You may see many of these other coins referred to as altcoins, an abbreviation of alternative coins, simply because they offer an alternative to Bitcoin.
Most altcoins are a fork of Bitcoin and were developed using Bitcoin’s open-source protocol. Examples include Litecoin (LTC) and Dogecoin (DOGE).
However, there’s also a long list of other altcoins that haven’t been derived from the Bitcoin protocol and have instead created their own blockchain and protocol. Some well-known examples include Ethereum (ETH), Ripple (XRP) and Cardano (ADA).
What is a crypto token?
Tokens are used to represent digital assets that are fungible and tradeable, including everything from commodities to voting rights. However, rather than operating on their own blockchain, tokens are hosted by another platform, such as Ethereum.
While tokens are also a medium of exchange, they offer functionality above and beyond that of coins. Tokens give their holders the ability to take part in some kind of activity – for example, if you want to bet on the outcome of future events through decentralised prediction market Augur, you’ll need to use REP, the Augur platform’s native cryptocurrency token. Tokens can also offer value to buyers, for example through buybacks.
Tokens are usually created and distributed to the general public through Initial Coin Offerings (ICOs), which are a form of crowdfunding. Some of the best-known crypto tokens include EOS (EOS), Tron (TRX) and OMG Network (OMG), with Ethereum being the most popular platform for token development.
However, there are also plenty of other platforms which tokens can be built upon, including Omni, NEO, Waves and Qtum.
Coins vs tokens
Coins are standalone cryptocurrencies based on their own blockchain. Tokens are built and hosted on existing blockchains.Explore more coins and tokens
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*Cryptocurrencies aren't regulated in the UK and there's no protection from the Financial Ombudsman or the Financial Services Compensation Scheme. Your capital is at risk. Capital gains tax on profits may apply.
Cryptocurrencies are speculative and investing in them involves significant risks - they're highly volatile, vulnerable to hacking and sensitive to secondary activity. The value of investments can fall as well as rise and you may get back less than you invested. Past performance is no guarantee of future results. This content shouldn't be interpreted as a recommendation to invest. Before you invest, you should get advice and decide whether the potential return outweighs the risks. Finder, or the author, may have holdings in the cryptocurrencies discussed.
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