As the crypto world expands each day, new terms come up. However, it can be very confusing learning how to use them properly or what they actually mean.
So let’s discuss one of the most misused terms in crypto: tokens.
What are crypto coins?
Crypto coins are virtual currencies encrypted by cryptography. They are similar to regular currencies in that they are durable, portable, acceptable, fungible and have limited supply.
Crypto coins are founded on a unique technology called Blockchain, which is a growing list of blocks that store information linked with cryptography. This system for electronic transactions doesn’t rely on trust and transactions can occur between any two willing parties.
There are two types of crypto coins: Bitcoin and Altcoins.
Bitcoin is the first crypto coin and was launched in 2009 by an anonymous group or individual named Satoshi Nakamoto. It was notably the first decentralized currency that didn’t rely on third parties. Bitcoins are created through mining, however, their supply is limited – only 21 million. This eliminates the risk of inflation. It increased in popularity when the Bitcoin price rose to almost $20,000.
Altcoins, on the other hand, were created a few years after Bitcoin. Their name means an alternative to Bitcoin. Nowadays, there are over 3000 altcoins on the market with most of them possessing unique and innovational features. Some of the most famous once are Ethereum, Ripple, Bytom and Cardano.
What are crypto tokens?
Crypto tokens, on the other hand, are virtual assets that symbolize either an asset or a utility. These are issued by the project and are used to make transactions in the project’s ecosystem.
While coins only execute the functions of payment systems, tokens may display a company’s share and many other functions. The owner of a crypto token earns the right to take part in the network.
There are two groups of tokens: security tokens and utility tokens.
Utility tokens are backed by projects and after buying utility tokens, users receive special benefits in the form of special access to the project’s functional or something else.
Security tokens (equity tokens), in most cases, depict a share of the company by which it was issued. Security tokens are comparable to partial ownership of a stock market after acquiring a share in a regular market.
Security tokens are generally better regulated than utility tokens. The reason for this is that security tokens are very confusing for people both inside and outside of the crypto community.
In a nutshell, security tokens are created to represent a company’s shares, when utility tokens, on the contrary, are used in specific ways inside the company/project.
What is their difference?
Both crypto coins and tokens are secured by cryptographic code and are used as a means of payment.
Yet, it is important to note a critical difference between these two, which is that while crypto coins function independently, tokens are employed only in certain cases and only in the ecosystem of the project/company.
Another distinction is that the only function of coins is being a form of method. Tokens give holders the opportunity to participate in a network.
Last but not least, tokens can be bought by coins, but the opposite can’t happen.
In Conclusion, crypto coins and tokens have pretty unique differentiators and are both used for very different purposes. Unfortunately, many people still confuse the two terms. However, you most likely won’t make this mistake again.