Greetings Steemians and welcome to a much-needed blockchain clarification. Today we'll be looking at the differences and relationships among 3 major terms in our daily blockchain lingo: coins, tokens, and protocols.

People oftentimes talk about coins and tokens interchangeably but, the reality is, those people probably have no idea what they're talking about.

Whether you're looking to really hammer down your crypto knowledge or still touting "in it for the technology", check out the following to help clarify any misconceptions that you might have about the relationship between coins, tokens, and protocols.

Let's get into it.

Coins vs. Tokens vs. Protocols

To start, let’s talk about the people that hold everything together in a blockchain network: the nodes.

Nodes are CPUs that maintain and update the blockchain by solving those crazy math problems you hear about known as hashes. These intensive problems are solved so that nodes can prove that they did the work (POW) necessary to verify the newest block of transactions.

Once a node provides that proof of work and the other nodes agree with its assessment, the new block then links to the pre-existing blockchain. Great.

Protocols

Now, in order for these nodes to stay in touch with one another to reach a consensus on a valid block of transactions, they must be able to communicate. The WAY by which these nodes can communicate is defined by the network's protocol.

In other words, a protocol is the set of rules that nodes must follow in order to be a contributing part of a particular network.

And protocols vary from network to network… So Bitcoin has its own unique protocol just like Ethereum has its own unique protocol. Their difference in protocols just means that the nodes on those networks communicate in different styles.

To make this idea of a protocol more tangible... A certain protocol might require nodes to do something like: receive information from other nodes in a particular format... or maybe open communication with other nodes when a certain bit is produced and close communication with other nodes when a different certain bit is produced, etc.

Once we've got this system for communication in place, nodes can then pass around the network's blockchain. This is the entire purpose of having a protocol for a blockchain network - to give nodes the ability to agree upon a certain state of the blockchain.

As the blockchain is passed around the nodes in a network, they work to keep it updated and verified. The blockchain then serves as a complete record of all transactions that ever took place. It tells us where every coin in the system has ever gone and therefore we can accurately determine how many coins each particular address has.

Coins

At this point we can officially and properly define a coin. A coin is the digital asset that is accounted for by and directly linked to a network's blockchain. This direct link to the blockchain oftentimes gives coins the clarifying name of the "native coin".

The meaning and value of a coin are derived from the fact that transactions are actively updated. If this system of upkeep wasn't in place, you could spend the same coin as many times as you want, making that coin worthless in real life.

Since the protocol dictates how nodes communicate to keep the network updated, we say that a network's protocol defines the native coin.

Tokens

What we're about to learn is that there is a secondary level of digital currency that can exist on a blockchain - tokens. Tokens are brought to life through pieces of code on a blockchain network known as Smart Contracts.

It's important to note that tokens don't have their own blockchain like native coins do. Rather they operate on top of the blockchain that supports a native coin.

In order for a token to be created, however, the blockchain network must have Smart Contract functionality. In other words, the network must support the development of Smart Contracts on its blockchain.

Not all blockchain networks have Smart Contract functionality. Bitcoin's blockchain, for example, does not offer the ability to program Smart Contracts and therefore Bitcoin will never produce a token.

The Ethereum network, on the other hand, does support Smart Contracts. So Ethereum has a native coin (ETH) as well as a collection of Ethereum-based tokens (we call them ERC-20 tokens). ERC-20 tokens, for instance, are created when a development team comes in and programs them onto the Ethereum network (as independent projects). The cryptocurrency EOS is currently the leading ERC-20 token in terms of total market cap.

The key difference to note between tokens and coins is that, while the presence of a native coin is necessary for blockchains to serve their purpose, tokens are optional creations. They are programmed on the network through Smart Contracts to serve a particular purpose.

Wrapping Up

To recap, a network's protocol defines the native coin. Secondary to the native coin we have tokens, which are created by Smart Contracts programmed onto a network's blockchain.

Hopefully this helps to clear up any misconceptions that you might've had. If you still have questions or know of any content that is supplementary this material, please feel free to share in the comments below.

Other than that, thanks for reading! Follow The Crypto Gym here on Steemit and on Twitter for daily clear explanations on all things Crypto. (: