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What’s the Difference between Cryptocurrency and Tokens?

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While cryptocurrency has piqued everyone’s interests, not many know much about them.

That’s because of the technical nature of the technology used in cryptocurrency.

For example, the blockchain technology behind cryptocurrency is often shrouded in technical jargon and computing language. Hence, people find it challenging to wrap their heads around this technology.

Instead, most people are familiar with the term Bitcoin

The creation of the Bitcoin marked a crucial milestone in the digital currency space, owing to its decentralized structure.

In fact, the inception of Bitcoin paved the way for the expansion of the digital currency space.

Thus, it led to the creation of a diverse ecosystem for other tokens and coins. These tokens and coins are often collectively called cryptocurrencies. However, most of them do not qualify as a “currency.”

Basics: Must-Know Cryptocurrency Jargon

Cryptocurrency is a digital and virtual currency that uses cryptography to secure itself.

Cryptography refers to the encryption techniques used to verify and secure the transactions.

Bitcoin was the first cryptocurrency that functioned in a decentralized manner.

And a public ledger maintained and validated the records of all the transactions in chronological order. The public ledger is the Blockchain network which facilitates the transactions through Bitcoin.

The key features of a cryptocurrency are as follows:

  • The cryptocurrency has an affiliation with an open blockchain that is publicly accessible.
  • People are free to send and receive coins. They can also mine the coins by participating in the blockchain.
  • The owners have complete authority over their coins. They receive help from the private and public key systems. These key systems act as a security feature for the wallets that store cryptocurrencies.

Cryptocurrency vs. Tokens

The term “cryptocurrency” has become a misnomer. Most people perceive both the coins, as well as tokens as cryptocurrencies. However, a majority of these coins don’t perform the task of a currency. They don’t function as a medium of exchange. Moreover, they don’t represent a store of value or a unit of account.

However, all these features of currency are innate to the nature of Bitcoin. The crypto space got a significant boost after the inception of Bitcoin. Hence, people usually consider all the coins conceived after Bitcoin as a cryptocurrency. However, most of those coins don’t fulfill the features mentioned above of a currency. Crypto experts classify cryptocurrencies in two parts namely-

  • Altcoins
  • Tokens

Altcoins

Altcoins are alternative cryptocurrency coins. People often use the two terms interchangeably. Altcoin, is mainly a reference for the coins that people use instead of Bitcoin, as an alternative. An overwhelming majority of altcoins are variants of Bitcoin. Experts design them on the lines of Bitcoin’s open-sourced structure. However, there are a few changes in the underlying codes. Hence, these are entirely new coins, with varying features. Litecoin, Peercoin, and Namecoin are among few of the Bitcoin codes variants.

However, few altcoins don’t follow the open-source protocol of the Bitcoin. Instead, they have a different Blockchain that facilitates the transactions on their platforms. They follow a protocol that facilitates the trading in their native currency. Ethereum, Nxt, and Ripple are some of the best examples of these types of altcoins.

Regardless of the kind of structure that they have, there is one thing common among all the altcoins. All the altcoins have their independent blockchains. These blockchains provide these coins the platform to operate. Operations relating to their native currencies take place on these blockchain-backed platforms.

Tokens

Tokens represent a specific asset that builds itself by using another blockchain as a base. A token can represent an asset that is tradeable. Such assets can include anything from commodities to loyalty points. It can also cover other cryptocurrencies. It is quite simple to create tokens as it does not entail the creation of a blockchain from scratch. Also, it does not require modifying the codes from a pre-existing protocol.

All it needs is following a standard structure on the blockchain. Following the standard structure on the Waves and Ethereum platform allows the creation of tokens. The creation of personal tokens requires self-executing computer codes. Smart contracts also play a critical role in the production of individual tokens. The idea behind the use of computer codes and smart contracts stems from the independent operation of logistical support. Thus, there is no requirement of third-party intervention.

In addition, Initial Coin Offerings (ICOs) are one of the best ways to create and distribute tokens to the public.

It is an easy means of crowdfunding. Initial Coin Offerings require releasing a new token or cryptocurrency to finance a project and develop it in various stages. An Initial Coin Offering is similar to an Initial Public Offering. Initial Coin Offerings are a great way of identifying promising projects that carry potential.

Summary

The fundamental distinction between tokens and cryptocurrencies lies in their structure. Cryptocurrencies have separate coins which function on a specific blockchain. On the contrary, tokens use a blockchain and build on the top of it. Thus, tokens use the blockchain system to facilitate the creation of a decentralized network.

The token acts like a digital asset, which when used within a blockchain ecosystem generate value. The tokens themselves carry no monetary significance. But they indicate the cost of the project which is underway. While people from all walks of life can use the cryptocurrencies, tokens remain confined to the project network. Therefore, only people who are a part of the Initial Coin Offering can acquire tokens.

Moreover, the number of crypto coins in supply often carries a limit. The inflation factor can play a role in the circulation of coins. However, there is no limit on the number of tokens that an organization can issue. Hence, the token is the initial stage for the launch of a cryptocurrency.

 

 

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