A cryptocurrency token, as opposed to a cryptocurrency coin, relies on another network for all of its transactions, storage, and inputs into the blockchain.
A great example of this would be the Shiba Inu token ($SHIB): it is an ERC-20 token which was deployed on the Ethereum blockchain. ERC-20 is simply the standard given by the Ethereum community to define what attributes a token should have. If the Ethereum network suddenly vanishes, then no Shiba Inu transactions will be possible anymore, since SHIB is a token which was deployed on the Ethereum network.
The great advantage of deploying a token vs. creating a coin is the speed in which one can create a token + the immediate scalability of the token’s transaction capability. Ethereum is an insanely large network, with thousands of nodes scattered across the world. It has processed an incredible amount of transactions already.
Therefore, instead of building your own blockchain from scratch, why not just borrow the resources of an already robust blockchain like Ethereum, and develop your blockchain application on that network? This can solve many of the costs associated with building a project, and all that is needed for every transaction with the token is a small network fee, called a gas fee in crypto terms.
Keep an eye on the new kids on the CryptoBlock, Solana, Cardano and Polygon.
Tokens can save project founders and developers countless hours of development by having their transactions secured by a trustworthy network. Many projects and teams deploy their token on Ethereum, but it is certainly not the only blockchain.
People can deploy tokens on $ETH, $MATIC (Polygon), BSC (Binance Smart Chain), $FTM (Fantom), $CRO (Cronos), $AVAX (Avalanche), $SOL (Solana), just to name a few. The basic idea to retain for a cryptocurrency token is simple: a token is a cryptocurrency asset which is deployed on another blockchain and uses the network of that blockchain for all transactions.
The disadvantage of a cryptocurrency token is the ease in which it can be made. Of course, we all know about the incredible success story of Shiba Inu (SHIB), however we do not talk about all of the scams and imitators of SHIB that exist.
There are so many that it is tough to count them. We have Floki Inu, Shiba Toby, CrogeCoin, Akita Inu, Red Panda Earth, and many, many more meme tokens that exist out there. Some of them are absolutely worthless and complete scams. How was anyone supposed to know that SHIB would become the incredible powerhouse of a token that it is today? There was absolutely no way to know back then in 2020, when it was deployed.
Overall, the difference between cryptocurrency coins and cryptocurrency tokens does not matter much. What matters is the project itself: what it accomplishes, and how it fits into the greater world of crypto. If the project has a useful utility, for example LUNA, then it may eventually be reflected by a larger market cap and a price increase.
However, knowing the difference between a cryptocurrency coin and cryptocurrency token can definitely help you spot when a project is a scam or not! For cryptocurrency coins, it is important to make sure that there is at least a blockchain explorer that you can check, for example Polygonscan for MATIC.
For cryptocurrency tokens, it is ideally best to have the smart contract (the code that powers the token) to be read or audited. Ideally, you know how to read smart contracts yourself and can spot scams yourself. But of course, many tools exist that help spot scams, like Tokensniffer.