Altcoins vs Token: What is the difference?

2023-02-17, 10:17

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## TL; DR

<a href="/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin</a> was the first cryptocurrency to be established in 2009.
Altcoins are all the cryptocurrencies which are not <a href="/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin</a>.

Stablecoins, security tokens, governance tokens and transactional tokens are types of altcoins.

Tokens and coins exist on the blockchain and people can buy, hold or transfer them.

## Introduction
There are thousands of cryptocurrencies which serve different functions and sustain various blockchains, decentralized applications and projects. Blockchain experts classify these digital assets to help users to understand how they work. The broad categories of cryptocurrencies are altcoins and tokens. This guide will cover these categories, their examples and how to use them. 
## What is cryptocurrency?
A cryptocurrency is a type of a digital asset which is also a currency, created using encryption algorithms. Basically, a cryptocurrency exists on the blockchain and is secured by cryptography. There is no central authority such as the government or bank that controls its use, thus it is decentralized.

<a href="/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin</a>, was developed in 2009 by a person with the pseudonym Satoshi Nakamoto, was the first cryptocurrency.  The aim of Nakamoto was to make it an alternative medium of exchange with no central control. 
## What are altcoins?
Alternative coins (Altcoins) are all cryptocurrencies apart from <a href="/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin</a> (BTC). <a href="/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin</a> was launched as a virtual currency which competes with fiat money. Following its launch in 2009, many other coins came onto the market.
![](https://gimg2.gateimg.com/image/article/1676628677Alitcoin1.png)
examples of altcoins- Fibogroup

## examples of altcoins
By the end of December 2022, CoinMarketCap showed that there were 22,157 cryptocurrencies.

![](https://gimg2.gateimg.com/image/article/1676628730Alitcoin2.png)

Total number of cryptocurrencies as at 31 December 2022- CoinMarketCap

The number one altcoin by market capitalization is Ether (ETH), with a circulating supply of 122,373,866. The other top cryptocurrencies include <a href="/price/bnb-bnb" target="_blank" class="blog_inner_link">BNB</a>, <a href="/price/tether-usdt" target="_blank" class="blog_inner_link">Tether</a> USDT, <a href="/price/usd-coin-usdc" target="_blank" class="blog_inner_link">USD Coin</a>, <a href="/price/xrp-xrp" target="_blank" class="blog_inner_link">XRP</a>, <a href="/price/binance-usd-busd" target="_blank" class="blog_inner_link">Binance USD</a>, <a href="/price/dogecoin-doge" target="_blank" class="blog_inner_link">Dogecoin</a>, <a href="/price/cardano-ada" target="_blank" class="blog_inner_link">Cardano</a> and <a href="/price/polygon-matic" target="_blank" class="blog_inner_link">Polygon</a> (Matic).

Most developers created altcoins to improve on the functionalities and framework of <a href="/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin</a>. For instance, most altcoins support decentralized applications and other DeFi products. A case in point is that of ETH that supports many decentralized applications (dApps).

In addition, people can use altcoins to make payments for goods and services. Many web-based businesses now accept cryptocurrencies as means of payment. Also, most of these businesses accept ETH as a medium of exchange. All payments using cryptocurrencies are recorded on the public ledger (Blockchain).

### Types of altcoins
There are different types of altcoins, depending on the functions they save. Stablecoins, utility tokens, security tokens and memecoins are examples of altcoins.
### Stablecoins: 
These are cryptocurrencies whose values are pegged against those of other assets or commodities. Usually, their prices are tied to the values of assets with low volatility. Most Stablecoins are pegged against fiat currencies such as the United States dollar. However, some Stablecoins are pegged against valuable commodities such as gold and crude oil. <a href="/price/tether-usdt" target="_blank" class="blog_inner_link">Tether</a> USDT, <a href="/price/usd-coin-usdc" target="_blank" class="blog_inner_link">USD Coin</a> and <a href="/price/binance-usd-busd" target="_blank" class="blog_inner_link">Binance USD</a> are examples of Stablecoins.

![](https://gimg2.gateimg.com/image/article/1676628786Alitcoin3.png)
examples of Stablecoins-Developers 
### Utility tokens: 
These are cryptocurrencies created to support the functions of specific blockchains. In other words, the people use them to purchase products and services of a certain blockchain. They also used them to pay for transaction fees on the networks they are built on. <a href="/price/basic-attention-bat" target="_blank" class="blog_inner_link">Basic Attention</a> Token (BAT), <a href="/price/filecoin-fil" target="_blank" class="blog_inner_link">Filecoin</a> and Funfair (FUN) are examples of utility tokens.
### Governance tokens: 
These are cryptocurrencies that give their holders the right to make developmental proposals and vote on suggested improvement plans. Usually, the voting powers are proportional to the number of tokens each user owns.
 
The votes of individuals with more tokens have higher weights than those with fewer tokens.  Maker (MKR) and <a href="/price/uniswap-uni" target="_blank" class="blog_inner_link">Uniswap</a> protocol token (UNI) are examples of governance tokens.
 
### memecoins: 
These are tokens whose values are often driven by social media hype and online community buzz. It is important to note that these coins are mostly used for speculative purposes since their values are very volatile. <a href="/price/dogecoin-doge" target="_blank" class="blog_inner_link">Dogecoin</a> and <a href="/price/shiba-inu-shib" target="_blank" class="blog_inner_link">Shiba Inu</a> are the main examples of memecoins.

![](https://gimg2.gateimg.com/image/article/1676628831Alitcoin4.png)
examples of memecoins- Outlookindia

### Security tokens: 
These are tokens issued by companies that give their holders a fractional stake in the project. They are equivalent to bonds and stocks in the traditional financial sector.

The developers of these cryptocurrencies aim to sell them to raise capital for their businesses or crypto projects. Also, these tokens may represent some off-the-chain or real world assets such as payable invoices and equipment.
### Transactional tokens: 
These are tokens used as medium of exchange. As such, their main purpose is to facilitate the buying and selling of goods and services. Therefore, they operate like fiat currencies, but they have more utility than money.  
## Advantages of altcoins
Now that we have explained what altcoins are and their types, let’s focus on their advantages. This also briefly covers what altcoins are used for.

1. The first advantage is that you have many altcoins to choose from depending on your preferences. Currently, there are over 20, 000 altcoins to choose from which include Binance Coin, ETH, <a href="/price/cardano-ada" target="_blank" class="blog_inner_link">Cardano</a> (ADA), Matic, DAI, <a href="/price/tron-trx" target="_blank" class="blog_inner_link">TRON</a> (TRX), <a href="/price/polkadot-dot" target="_blank" class="blog_inner_link">Polkadot</a> (DOT) and <a href="/price/uniswap-uni" target="_blank" class="blog_inner_link">Uniswap</a> (UNI). In fact, the list of altcoins is very long.

2. Some altcoins enable users to hedge themselves against price volatility and inflation. This is particularly true with Stablecoins. Crypto users can select among many Stablecoins available on the market. Apart from maintaining the value of your cryptocurrencies by owning Stablecoins, you can also invest in them through lending them to other users and earn interest in return.

3. Investors can hold altcoins for long periods as they anticipate their prices to rise. If their prices rise, the speculators earn profit. The diversity of altcoins helps the investors to choose those with the best fundamentals and utility.

4. Most altcoins have more utility than <a href="/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin</a>. This is because people mostly use BTC for speculative purposes and as a means of payment. However, most of the altcoin coins are utility tokens which people use to buy products which dApps offer.

5. Most tokens have lower transaction fees than <a href="/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin</a>. This is because they use the proof-of-stake (PoS) consensus mechanism rather than the proof-of-work one which <a href="/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin</a> uses.

## What are tokens?
It is worthy noting that all cryptocurrencies exist on the blockchain and they have their own networks. In this sense, a blockchain is a platform or protocol that keeps data which is impossible to alter, falsify or replicate. Stated differently, a blockchain is a connection of multiple computer systems, also called nodes.

The cryptocurrencies that are developed on non-native blockchains are called tokens. In other words, a token does not have its own blockchain but exists on a network that has its own native cryptocurrency. For example, ETH is a native coin of the <a href="/price/ethereum-eth" target="_blank" class="blog_inner_link">Ethereum</a> blockchain. However there are many other tokens that exist on the <a href="/price/ethereum-eth" target="_blank" class="blog_inner_link">Ethereum</a> network such as <a href="/price/uniswap-uni" target="_blank" class="blog_inner_link">Uniswap</a> (UNI) and <a href="/price/tether-usdt" target="_blank" class="blog_inner_link">Tether</a> USDT.

The main purpose of tokens is to facilitate transactions on the blockchains they exist on. Some of these are used to pay for transaction costs. As such, they help to power many decentralized applications which offer various services and products. Some platforms use tokens to reward their community members as well as acting as a means of payment.

In addition, most tokens are important in securing the blockchain networks they exist on. Specifically, staked tokens help to secure the network from malicious actions such as hacking.

### Types of tokens
There are several types of tokens which include utility tokens, transaction tokens, security tokens, fan tokens and memecoins. Most of these have already been explained above.
## How do tokens work?
Since crypto tokens are cryptocurrencies, people can buy, hold and transfer them on the blockchain. They also serve various functions such as being a medium of exchange and investment assets.

As you know, tokens are intangible digital assets. Since we cannot physically hold  them they are transferred from one wallet to another. When you send the tokens to another account, they leave your wallet. The proof of a transaction is recorded on the blockchain in the form of transaction id.

These tokens have different standards. For example, on the <a href="/price/ethereum-eth" target="_blank" class="blog_inner_link">Ethereum</a> blockchain they exist as ERC-20 and ERC-721 and they serve different purposes. As an instance, the ERC-721 facilitates the operation of non-fungible tokens.

## Applications of tokens
We have already covered the differences between coins and tokens. Of which the main difference is that coins exist on their native blockchains while tokens are created on another blockchain. This means that tokens do not have their own blockchain; they share the networks with coins.

We can use tokens on crypto exchanges where we can trade them. With some decentralized applications the community members earn tokens as loyalty rewards or airdrops. In some cases, token holders participate in decision making through voting or suggesting improvement proposals. 
## Conclusion
Altcoins and tokens are the major types of cryptocurrencies. After the launch of <a href="/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin</a> many other cryptocurrencies, called altcoins, were created. Currently, there are over 20,000 cryptocurrencies that serve different purposes such as medium of exchange. ETH, <a href="/price/tether-usdt" target="_blank" class="blog_inner_link">Tether</a> USDT, Binance Coin and <a href="/price/cardano-ada" target="_blank" class="blog_inner_link">Cardano</a>(ADA) are some of the major altcoins. 
## FAQ on tokens and altcoins differences
### Are altcoins and coins the same?
Altcoins are all cryptocurrencies which are not <a href="/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin</a>. <a href="/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin</a> was the first cryptocurrency to come into existence. Altcoins are not the same as coins. Coins are the cryptocurrencies that exist on their native blockchain. However, some coins such ETH and <a href="/price/bnb-bnb" target="_blank" class="blog_inner_link">BNB</a> are also altcoins.
### Are altcoins the same as tokens?
Altcoins are not the same as tokens. Altcoins are all cryptocurrencies which are not <a href="/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin</a>. However tokens are the cryptocurrencies that are created on non-native blockchains. They exist on other blockchains. However, most tokens are altcoins.
### What are the top 5 altcoins?
Most analytical platforms such as Coinmarketcap rank cryptocurrencies according to their market capitalization. The number one altcoin based on the market capitalization is ETH.  Currently, <a href="/price/tether-usdt" target="_blank" class="blog_inner_link">Tether</a> USDT is the second altcoin followed by <a href="/price/usd-coin-usdc" target="_blank" class="blog_inner_link">USD Coin</a>, Binance Coin (<a href="/price/bnb-bnb" target="_blank" class="blog_inner_link">BNB</a>) and Ripple (<a href="/price/xrp-xrp" target="_blank" class="blog_inner_link">XRP</a>). However, the ranks of cryptocurrencies change from time to time depending on fluctuations of their prices.  
### Is an altcoin a token?
Altcoin is not a token since it does not refer to a single cryptocurrency. This is because some altcoins are tokens while others are coins. However, most tokens are altcoins except non-fungible tokens (NFTs).  The reason why all crypto tokens are altcoins is that they were created after <a href="/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin</a> was in existence.
### What is the main difference between a coin and a token?
A coin is a cryptocurrency that is created on its native blockchain while a token exists on another blockchain.  For example, ETH is the native coin for the <a href="/price/ethereum-eth" target="_blank" class="blog_inner_link">Ethereum</a> blockchain. However there are many ERC-20 tokens such as UNI and <a href="/price/link-ln" target="_blank" class="blog_inner_link">LINK</a> since they exist on the <a href="/price/ethereum-eth" target="_blank" class="blog_inner_link">Ethereum</a> blockchain.
### Is ETH a coin or a token?
ETH is a coin since it exists on its native blockchain, the <a href="/price/ethereum-eth" target="_blank" class="blog_inner_link">Ethereum</a> network.  It is the cryptocurrency that drives the entire <a href="/price/ethereum-eth" target="_blank" class="blog_inner_link">Ethereum</a> blockchain as it is used for paying transaction fees. However, the <a href="/price/ethereum-eth" target="_blank" class="blog_inner_link">Ethereum</a> blockchain hosts many tokens such as <a href="/price/usd-coin-usdc" target="_blank" class="blog_inner_link">USD Coin</a>, <a href="/price/chainlink-link" target="_blank" class="blog_inner_link">Chainlink</a> and <a href="/price/tether-usdt" target="_blank" class="blog_inner_link">Tether</a> USDT.

<div class="blog-details-info">
<div>Author:** Peter L.**, Gate.io Researcher
<div class="info-tips">\*This article represents only the views of the researcher and does not constitute any investment suggestions.
<div>\*Gate.io reserves all rights to this article. Reposting of the article will be permitted provided Gate.io is referenced. In all cases, legal action will be taken due to copyright infringement.
</div>