Bitcoin Terminology and Definitions: (Coin, Token, Smart Contracts)
Leading decentralized digital currency, Bitcoin has been variedly defined and qualified with numerous terms such as coin, crypto, tokens, digital asset, virtual currency, among others.
While none of the terms above is out of point, it is instructive to note that Bitcoin is purely decentralized using a peer-to-peer network to secure payments.
However, this article will bring you up to speed regarding the comprehensive meaning of major Bitcoin terms like coin, token, and smart contracts.
What is Coin?
A coin is an abbreviated form of the word cryptocurrency. Coin or cryptocurrency simply refers to the digital currency that does not rely on other blockchain or platforms.
More fundamentally, a coin can be likened to a currency or a digital asset that is not a token. What differentiates a token from a coin is that while the former depends on another blockchain to exist, the latter operates on its peculiar blockchain.
However, a coin is not designed to perform any utility functions like being used to vote within a community.
There is no doubt that coins operate like a native currency in the financial world. Consequently, it is often used as a medium of exchange or value storage.
It should be noted that coins are generally traded between two or more people with prevailing market conditions determining the price value of the coin.
Meanwhile, a coin can be exchanged for a token through a cryptocurrency exchange or private transfers such as peer-to-peer and Over-The-Counter (OTC) trade.
In addition, traders often make use of decentralized exchanges and atomic swaps in trading coins for tokens and vice versa.
More than any other time, many startups and companies intending to launch new crypto projects adopt Initial Coin Offering (ICO) to generate money.
Most of these ICOs are launched on the Ethereum network. As a result, interested buyers are issued tokens instead of their native coins because they do not have an independent blockchain.
In other words, most of these companies launch their projects on an existing blockchain network, as such, they could only create a digital token.
What is a Token?
Token refers to a virtual currency that depends on another blockchain or platform for its operation.
It should be clearly stated that tokens do not run on their blockchain. Tokens represent fungible and tradable assets that can be paired or traded on cryptocurrency exchanges.
It is instructive to know that tokens are usually created through an Initial Coin Offering (ICO) ahead of launching a crypto project.
In this regard, interested investors purchase the tokens as this serves as an endorsement for crypto companies willing to launch a project.
However, holders of crypto tokens can trade or stake it where applicable.
What Are Smart Contracts?
Smart contracts refer to the legal contracts primarily designed for any crypto project. Each smart contract is purely written in computer languages and code as against conventional legal documents.
A smart contract is otherwise known as a computer protocol that digitally enhances or enforces the conditions attached to a contract.
Most importantly, every smart contract is made up of two or more parties with both or multiple parties communicating with one another through code.
It is instructive to note that smart contracts can be carried out by a distributed computing system such as a blockchain.
One of the advantages of a smart contract is that there is no need to pay intermediaries because it is a decentralized system accessible to all recognized parties. Similarly, it saves time and eliminates the possibility of conflict.
Meanwhile, each party is bound to review the contract’s terms and conditions before executing approval.
More often than not, smart contracts are developed to be tamper-proof to settle contract breaches when the circumstance arises.