Difference between Cryptocurrency & Tokens

It could be challenging for newbies to distinguish between tokens and crypto-coins. Given all the terminology and complexity, it isn’t easy to understand Blockchain tech and cryptocurrency. Hence, this complexity acts as a barrier for many who are curious and want to engage in this world.

Intro to Crypto-currency

Blockchain is like a ledger; each block is a period of the transaction. Everyone on the blockchain records the entries, and once the transaction is final, the entries are locked in. Then the next block starts building on top of the previous block, one by one. Any cryptocurrency user does not have a coin or a token but a key that allows them to make an entry to the blockchain, which declares the coins or tokens transaction to destination. Similar to a funds transfer between bank accounts.

Azbit aims to connect traditional finance and cryptocurrency | Data Driven Investor

Cryptocurrencies or digital coins often have a crucial purpose: to be used as a transaction mode. Bitcoin is the first-ever cryptocurrency developed, which eliminates fiat currencies. The Bitcoin is designed using a trusted and stable decentralized public ledger, which is the blockchain. The design assures a fast, secure, and affordable transaction between two points. It mainly indicates the value of a crypto-coin to be used to exchange for services and goods, kind of like a barter system.

Crypto-coins and tokens are a form of cryptocurrency, though they have similarities, they are quite different. They both run on blockchain technology, also are traded similarly. Crypto-coins act independently of any platform, whereas tokens require another platform to exist. A coin is used as a currency, but tokens have more extensive applications.

The main intention of a crypto-coin is to make a payment or a financial exchange. In contrast, tokens help in using various features employed by a decentralized app within a blockchain. Nonetheless, coins can be multifunctional.

Ether, which is a token built on Ethereum coin, serves as fuel for smart contracts. A smart contract is a software program that validates and controls the digital currency or asset transactions between two given parties. Smart contracts exist across the decentralized blockchain network.

Each coin has an advantage local to its blockchain, with its capacity and activity being exclusively on their particular blockchain. Every crypto coin was introduced initially from the blockchain through an Initial coin offering (ICO), which allows individuals to pay money to obtain any crypto coins for use inside the blockchain. Crypto owners can profit when there is a rise in the value of these cryptocurrency/coins; This can be effectively managed by using various digital currency platforms such as Coinbase, Binance, and Kraken. The most famous example of a drastic rise in the value of a crypto coin on the stock exchange is Bitcoin, when its value took off from $2,825.27 on July 21, 2017, to $19,650.01 on December 15, 2017.

What is a Token in Crypto-world?

Tokens are often misunderstood for digital coins. However, there is a vast difference.

A token is defined as a unit value, created on an existing blockchain. A token, in general, is something that represents a value, stake, voting rights, or so in an ecosystem. Anybody can create a token on a given platform as per their requirement. An individual who creates these tokens is usually called ‘a developer.’ A developer pays the blockchain in some native currency while creating these tokens. Once created, tokens are often used to initiate many features an application can offer as per its design.

Crypto-tokens serve more purposes than just granting users access to decentralized App products and services. Some tokens work as assets or investments, while others are also used as currency.

Tokens are used to raise stocks in an Initial Coin Offering (ICO), which is a similar concept as Initial Public Offering (IPO) of companies going public on the stock exchange. The token purchased in an Initial coin Offering represents the share in an organization or can give a user voting right for the decision making of that organization.

Token vs. Coin: Their Purpose

To distinguish between the token and a crypto-coin, one must understand the significant uses of the above.

Crypto-Coins are mostly used as money, which is considered obvious.

Anyway, many coins have purposes other than acting as currency. For example, Binance, which is a renowned crypto exchange, has its own token BNB (Binance token). When one uses this token for the transaction, the fees are 50% less.

BAT, Basic Attention Token aims to build a system in which Digital content creators, advertisers, content publishers, and internet users all benefit. At the same time, incompetent and invasive middlemen platforms such as Facebook and YouTube eventually grow obsolete.

MUSIC is a token that is built on the platform Musicoin, allows its users to access different features watching a music video or streaming a song. As a bonus, The users can use all the features free of cost with no ads, easy to share, and the independent artists get paid instantly.

Status, which is represented as $SNT, is built on ethereum. It runs the go-ethereum (geth), on mobile devices, allowing users to turn their gadgets into Ethereum nodes. Status allows users to engage in mining and make the Ethereum network stronger.

Mithril is a decentralized social media platform built on Etheruem. ERC-20 MITH is the token built on this blockchain, which is rewarded to content creators and contributions to their social networks.

WPR token is an excellent example of a token that represents a physical entity; it represents electricity. WPR is a utility token built on the WePower platform, which is equivalent to certain measure of energy. Users can buy and sell electricity on the blockchain using the smart contracts on this platform.

The most famous example of a token is Ether, which is an underlying token for Ethereum. Ether provides this crypto the power and strength to sustain its purpose. Ether is an excellent example of how tokens work inside a blockchain.

After all, it wasn’t that difficult to understand the difference between token and crypto-coin, Isn’t it?

The key point to remember is that a Crypto-coin is local to a given blockchain, which is usually used as a means of financial transactions. In contrast, tokens are created on top of a blockchain, which serves various purposes, depending on the developers’ requirements.

Sahithya, an IT professional, Working in the field for the last 4 years. She mostly likes her job but LOVES to write. She makes sure to whip up something on her blog from time to time, That is what keeps her sane.

She also enjoys sketching and painting from time to time as a stress buster. She also enjoys to Binge read some random picks on her Kindle.

Sahithya worked as a Volunteer English Teacher at Make a difference (Non-Profit Organization) during 2011–2012, and as a Student Volunteer at Street Cause (NGO) in 2012. Currently she works as a Software engineer in Florida, United States of America.

https://medium.com/@ravalisahi View all posts by sahithya09

Originally published at http://sahithya09.wordpress.com on April 20, 2020.

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Difference between Cryptocurrency & Tokens was originally published in Data Driven Investor on Medium, where people are continuing the conversation by highlighting and responding to this story.