In this article, we explain the main difference between cryptocurrency coins and tokens, and why the term “cryptocurrency” is not definitely right.
Cryptocurrencies can be so hard to turn our heads around, especially since their underlying technology – the Blockchain – is surrounded by computing language and terminology that has the technical origin. This is a huge impediment to those who are interested in the crypto space. But do not worry! We will explain to you in understanding key cryptocurrency concepts that are good to know.
What are Cryptocurrencies?
Let’s start with understanding the term of cryptocurrencies. Cryptocurrencies are digital or virtual currencies that are encrypted or secured using cryptography. Cryptography is about to the use of encryption techniques to secure and verify the transactions. Bitcoin is the first presenter of decentralized cryptocurrency, which is powered by a public ledger that records and validates all transactions chronologically, called the Blockchain.
However many cryptocurrencies have existed prior to Bitcoin, it’s creation marks an important milestone in the realm of digital currencies, according to its distributed and decentralized nature. The creation of Bitcoin came to the expansion of a lush and more diverse ecosystem of other coins and tokens, that are often regarded as cryptocurrencies in general, even when most of them do not fall under the definition of a “currency”.
Tokens are a representation of a particular object or utility, that usually acts on top of another blockchain. Tokens can represent basically any assets that are fungible and tradeable, from commodities to loyalty points to even other cryptocurrencies.
Creating tokens is a much more easy process as you do not have to modify the codes from a particular protocol or create a blockchain from zero. All you need to do is to follow a standard template on the blockchain – such as on the Ethereum or Waves platform – that gives a possibility to you to create your own tokens. This functionality of creating your own tokens is made possible through the use of smart contracts.
Tokens are created and distributed to the public through an Initial Coin Offering, which is a means of crowdfunding, through the release of a new cryptocurrency or token to fund project development.
The main difference between altcoins and tokens is in their structure. Altcoins are separate currencies with their own separate blockchain while tokens operate on top of a blockchain that facilitates the creation of decentralized applications.