Token in Simple Words

Cryptocurrency and Token – Differences

Cryptocurrency is a kind of a puzzle for those who do not know the topic very well. The blockchain, their technology, doesn’t help to understand the cryptocurrencies, as it is all about computing language and complicated terminology. That is why, many are interested in cryptocurrency, but not many can start investing in it.

Cryptocurrencies: What Are They?

Cryptocurrency is a virtual currency. Basically, it is a kind of software, that is protected, encrypted with cryptography. Cryptography, in turn, is a technique of encryption which helps to verify the transactions.
The first decentralized cryptocurrency is called bitcoin, this is the most popular cryptocurrency, as well. this currency is managed by a public ledger called the Blockchain.

Many cryptocurrencies started their way before the bitcoin was created. Though, we speak about bitcoin because it is a crucial turn in the idea of cryptocurrency, as this is the first decentralized currency.

Now, there are many coins that we call cryptocurrencies, even though some cannot be categorized as cryptocurrencies.

Coins and Tokens – the Same or Different?

Currency is first of all a unit of account, it can function as an exchange media, while most cryptocurrencies do not comply with this idea. Bitcoin is, probably, the only cryptocurrency that has all the above mentioned features. Hence, we can call only bitcoin cryptocurrency.

Then, what are others?

We can categorize all cryptocurrencies into two categories:

Altcoins, or Alternative Cryptocurrency Coins
– Tokens

Altcoins are digital coins that we can compare with bitcoin. Most of the coins are the fork of bitcoin, they are using bitcoin protocol, just the underlying codes are modified.

Tokens are different though.

More in-Depth about Tokens

Tokens are not coins, as you have already guessed, but an asset, or rathe utility. Normally, it resides on another blockchain. Any asset that can be sold, bought, traded, etc., can be represented by a token. Even cryptocurrencies can be represented by tokens!

It is much easier to create tokens than to create cryptocurrencies. You do not need to modify any codes, develop new blockchains. Just keep the standard blockchain format, and develop something like, say, Ethereum. Tokens can be created through smart contracts. Those are special computer codes that can be programmed to self-execute when some conditions are met.

Tokens are distributed through an ICO, or Initial Coin Offering.

Then main and the most important difference between token and cryptocurrency is the structure of both offerings. Altcoins are independent currencies, while tokens represent an asset. Cryptocurrencies function in the blockchain, and tokens work on top of another blockchain.


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