A cryptocurrency has its own Blockchain. Tokens, on the other hand, are created on the Blockchain of an existing crypto. But is it just that difference between cryptocurrency and token?
A cryptocurrency has its own Blockchain and has a currency function only. It serves no more than that. The token is subjugated to an existing Blockchain. However, it has many functions, being more intelligent […]
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What is the difference between crypto and tokens?
A cryptocurrency has its own Blockchain and has a currency function only. It serves no more than that. The token is subjugated to an existing Blockchain. However, it has many functions, being more intelligent. In addition to exchange currency, the token has property, utility, reward and fungibility.
Understanding a cryptocurrency
Bitcoin, for example is a cryptocurrency. It’s digital money. But it serves no more than a currency. You can use Bitcoin as a currency or as a saving of value, but apart from that it is no longer useful.
A virtual currency also has its own Blockchain, so:
- Bitcoin has the Bitcoin Blockchain;
- Ethereum has its own Ethereum Blockchain.
Just like ordinary money. Money is only useful for buying things, but it is useless. You can better understand what a cryptocurrency is in this text: “What is Bitcoin? Complete Guide 2020“.
Understanding a token
A token is created from a cryptocurrency’s Blockchain. For example, the Chain Link (LINK) token is created within the Ethereum cryptocurrency Blockchain.
However, a token is much more intelligent and has many more functions than a cryptocurrency.
Tokens can hold complex levels of value and have varied and peculiar characteristics. Within the programming of a token, there are certain programs that make them multifunctional.
Main characteristics of a token
In fact, tokens represent 4 very important things:
- Property. Within the token there is programming that represents the creator’s intellectual property;
- Utility. You need this token to enter the environment for which this token was created;
- Reward: The consumption of the product or service of the environment generates return to the token holder;
- Fungibility: Will be spent or consumed after use.
And in addition, there is also of course, the function of currency exchange. But this is more a consequence than a function of a token. Remembering that the focus is its use and not its financial value.
Difference between cryptocurrency and Ethereum token
In order to better explain the difference between cryptocurrency and token, I will give the example of Ethereum. Ethereum has its own Blokchain, just like Bitcoin. Only with a multiple functions that BTC does not have!
This Blockchain has its cryptocurrency: Ethereum (ETH). Subdued to him, there is an immense list of tokens. Some things you can do on the Ethereum network:
- Financial transfers to any part of the world;
- Crowdfunding campaigns;
- Insurance policies;
- Registration of property titles;
- Tax collection;
- Medical history record;
- Create tokens;
- And others.
ETH: crypto with token function
This Ethereum virtual currency has the function of cryptocurrency and token. To use the Ethereum Blockchain, you need the Ether token (ETH). In other words, ETH has the role of cryptocurrency. But at the same time, it has an intelligence within it that gives the function of utility, which we mentioned above.
Therefore, the ETH token allows the user to use and take advantage of the things they can do within that environment, in this case the Ethereum Blockchain.
What is the token function?
As stated earlier, tokens have intelligence and certain functions. To illustrate, I will give the example with the bank token.
In the past, to access your bank account over the Internet, you had to have a token. This token is physical, looks like a pen drive and showed a type of “password”. This password, in turn, changed every minute or second.
This token has the intelligence to allow you to access your Bank. That is, it is useful only for that environment. So it allows you to benefit from using your bank over the Internet.
Of course, this is a very old example, nowadays, we no longer use the physical token.
What is the difference between cryptocurrencies and tokens in trading?
Using the same example as before: Imagine that your bank issues only 100,000 tokens. However, it has 200 thousand customers! And all 200,000 want to have their own tokens.
It is likely that some people will decide to sell them. And so they start to trade the tokens with each other. That’s why tokens have value: because people want to use it for a specific purpose!
In terms of trading, it is no different from cryptocurrencies. All can be registered and traded on an exchange. Its price (when it is not a stablecoin) is usually determined by supply and demand.
An ICO is the generation of a new token and the pre-sale of these to interested parties. Initial Coin Offering.
The price of the token during the ICO is usually quite low. ICO investors buy cheap to – most of the time – sell more expensive in the future. The “HODL” thing that we explain here in this text.
This new token, when generated, brings with other characteristics that will be (or not) useful in the future. So it is very important, you be carefull when investing in an ICO.
Investing in ICOs
It is necessary to check if that token will be useful. Or that it will be a project that people will use. I say this because most of the ICOs that we see out there are tokens that only have the use of currency – and of that, we already have enough!
And there is also the case when tokens are nothing but schemes and frauds, which are useless. If you invest in such type of ICO, the result will be one. The token devalues and you lose all your invested money.
Therefore, it is very important to be careful when investing in an ICO. It may be one of the best investments of your life, but most of it will disappear in the long term.
Well, these are the main differences between cryptocurrency, token and ICO. If you have any questions or would like to add to the article, call me! You can find us on the social networks below or here by the comments.
This article was written with a lot of love!