The two most often confused and interchangeably used terms, crypto coins, and tokens explained
The blockchain technology has unexpectedly spurred a lot of other new fields. The cryptocurrencies being one of the first mainstream adoptions of the blockchain technology there are a few other concepts within the industry which apply the blockchain technology. For an instance, the protocol tokens are different from the cryptocurrencies, but both of them apply to Blockchain Technology itself. Let us try to understand the basic characteristics which differentiate a cryptocurrency coin from a protocol token.
Both of them are most often regarded or assumed as being circulated as a currency but actually, it is not the case. Bitcoin is regarded as a currency because it is a medium of exchange and a store of value. But due to the high momentum, all the tokens, as well as the coins, were termed as cryptocurrencies, which is not correct. They incorporate completely separate ways of cryptography. This confusion can be a great disaster for the newcomers in the field.
Cryptocurrency coins are just a digital version of the Fiat currencies that we use on a day to day basis. Bitcoin is one of the best examples of a cryptocurrency coin. The transactions that take place using Bitcoin are stored on an immutable ledger which is distributed throughout the network for verification and transparency. The Blockchain network reduces fraud and increases transparency. There are a number of other cryptocurrencies which are created on the original Bitcoin protocol, proposed by the anonymous group of people named, Satoshi Nakamoto like Litecoin, Namecoin, etc. There also cryptocurrencies like Ripple and Monero which are developed on their own separate blockchain protocol. Each and every cryptocurrency coin needs to have some basic characteristic features to qualify itself as a coin, They are as follows.
The coin should be
- have a Limited supply.
The cryptocurrency coins can be sent, received, and can also be mined. They can, in no circumstances, act differently from a currency.
Cryptocurrency token is very similar to the cryptocurrency coin but a token can be used as a part of an ecosystem. A token gives the owner, the right to participate, in that particular network. The functionalities of a token are unlimited and their existence only seems to be valid inside a particular ecosystem, outside of which they become null and void. A token might be used to represent a company’s share, give access to the project’s functionalities, or used as a digital asset. With every launch of a new project, a new functionality of the token is unraveled.
One of the most real-life examples of a token is a ticket for a particular concert. The ticket is valid only within the premises of the concert and sometimes may be valid at other designated restaurants and places. Security tokens, as well as utility tokens, are the two types of tokens which are available in cryptocurrency market. Security tokens are mostly considered to be a security while representing the share of the company, but the utility tokens find its application outside the ecosystem also.
Creation of a particular coin is a cumbersome process as the user needs to have a vast amount of knowledge about the Blockchain Technology. On the other hand, the creation of tokens doesn’t require that much information, one can use a standard template provided by some of the most successful Blockchain platforms. The Ethereum network provides the best service in this matter where the creation of tokens can seamlessly be undertaken by following a few simple steps.
A cryptocurrency coin can just be used as a transfer of value but a token can represent a company’s share within that ecosystem. A token might be necessary to access particular financial services that the blockchain network provides. Similarly, cryptocurrency coin can be used to buy or sell goods or services. Interestingly, it is to be noted that tokens can be bought with the help of cryptocurrency coins, but the coins cannot be bought by using tokens. Now, as one has understood the basic difference between a cryptocurrency coin and token it would become easier for them not to get misguided or misled in the cryptocurrency world.