Coins, Utility Tokens & Security Tokens — What’s the Difference?
The world of cryptocurrencies is full of terms that sound the same but actually have different meanings. Many people use the terms coins and tokens interchangeably, but in reality, they are not quite the same. One of the most confusing aspects of cryptocurrencies is understanding the difference between coins, utility tokens, and security tokens. In this blog post, we’ll take a look at each of these crypto assets and attempt to answer that all-important question: what’s the difference between coins, utility tokens and security tokens?
The main difference between coins, utility tokens, and security tokens is their usage for different purposes. In simpler terms, coins can be bought and sold on the market hence representing currency, while utility tokens can only be used to pay for specified goods or services. Security tokens represent ownership of real world assets such as company shares, real estate or even commodities.
A coin is a digital currency that operates on its own blockchain and keeps track of all transactions that are related to its native coin. For example, all Bitcoin transactions are done on the Bitcoin blockchain. Every transaction is encrypted and is accessible by the network members only. All transactions of the coin are recorded in the blockchain and the coins can be mined either via the Proof of Work system or the Proof of Stake method.
It has no physical existence and is not issued by any government or central bank. As any central authority does not regulate it, its price is determined entirely by supply and demand. Coins can act as a means of payment, like the Dollar or the Euro and also as a store of value. Examples of well-known coins include Bitcoin, Ethereum, Binance Coin, XRP and Solana.
Tokens (both Utility and Security) on the other hand, operate on other blockchains as they do not have their own blockchain. The transactions for tokens are handled by Smart Contracts, which are basically self-executing lines of codes (or programs) with the terms of the agreement between buyer and seller. There are several widely used token standards for creating tokens, the majority of which are built on Ethereum (ERC-20 and ERC-721). Tokens can hold value and be exchanged just like coins, in addition, they can also be designed to represent a certain utility or service (Utility Tokens), physical assets or more traditional digital assets (Security Tokens).
Utility tokens are digital tokens that are not used as a medium of exchange, but rather as a means of providing access to a particular service or function. They are used to access products or services within an ecosystem and have value only within that ecosystem. It’s often used as an incentive for early adopters who purchase tokens during ICOs so they can have access to future projects built on top of the blockchain platform once it launches. They are similar to coupons or vouchers that give customers a discount on a product or service in exchange for their investment in the business.
Generally, utility tokens are not considered investments, however, they can grow in value if what the token represents becomes very popular and in demand. An example of a popular utility token is the Basic Attention Token which pays publishers for their content and users for their attention on their Brave browser.
Security tokens are digital asset that represents investment or ownership of an asset and can additionally provide holders with certain privileges, such as voting rights and dividend payouts. These tokens’ main purpose is to be an investment (although some do carry some form of utility) and normally represent asset classes such as shares (stocks) or bonds in a company, real estate and even commodities.
Most countries have regulations that apply to security tokens which makes them a more stable investment and less prone to scams due to the heavy regulation imposed. These tokens are issued by licensed platforms and examples of some popular security tokens include tZero (regulated exchange for security tokens) and Spice VC (VC Fund investing in blockchain-related companies).
Coins and Tokens as a Mode of Payment
Now that you understand the main differences between coins and tokens, it’s worth noting which are those that can be used as a currency to purchase goods and services. Most of the top cryptocurrencies can be used as a mode of payment giving the holders more options and more usage of their crypto.
We at Paywong enable buyers to pay with their cryptocurrencies via our fully decentralised payment gateway which offers all the benefits that come with DeFi and smart contracts. Our non-custodial payment gateway allows merchants to receive cryptocurrencies without any intermediaries and in real-time. Smart contracts enable the automatic processing of payments from the acceptance and swapping of funds straight to settlement.
With Paywong, anyone can accept crypto payments, including stablecoins, from anywhere in the world with low transaction fees, with or without a website. The startup is also working with a third-party off-ramp solution to allow its users to convert crypto to fiat in real time. Paywong is a non-custodial crypto payment gateway that provides merchant services for businesses that cater to all kinds of customers. In addition, Paywong is also useful for individuals who are working as freelancers and want to get paid for their services in crypto.
Paywong is slated to launch this month with features that include an intuitive dashboard to manage user funds, e-commerce integrations and also an invoicing system that generates a payment link for anyone to share. They are currently offering the first 5,000 signups with a lifetime offer of 0.5% merchant transaction fee. Simply join the waitlist, and you’ll be on your way to accepting crypto as payment from your customers.
For additional information and updates, visit the official website along with the Twitter, Linkedin and Telegram channels.
About The Company
Paywong is a product of Walawong Solutions Pte Ltd — a Web3 startup based in Singapore. We are on a mission to simplify crypto payments for businesses by leveraging the power of blockchain technology.