Understand The Key Differences Between Cryptocurrency And Tokens
The two largest developments in the tech world at the moment are cryptocurrencies and digital assets. Cryptocurrencies are used by people all around the world, as seen by the nearly 80 million blockchain wallets that have been registered globally. However, many people in the cryptocurrency industry frequently mix cryptocurrencies with tokens. You can have trouble telling key differences between cryptocurrency and tokens because they are too similar, and only by going into their deep use cases can we tell the discrepancies.
On the other hand, some significant distinctions in the terms are frequently employed. What distinguishes these two types of digital assets from one another? You can get trustworthy responses to the token vs. cryptocurrency discussion by reading the discussion that follows. A thorough breakdown of the distinctions between cryptocurrencies and crypto tokens can be found from several angles.
Knowledge of Digital Assets
“Is cryptocurrency the same as a token?” Cryptocurrency and tokens are digital assets in the blockchain ecosystem. According to a more comprehensive definition, digital assets are non-tangible items that can be created, traded, and kept in digital form on a blockchain.
In actuality, cryptocurrencies and crypto tokens are separate digital assets that use cryptography’s capabilities. The advantages of cryptography as a sophisticated encryption method aid in confirming the legitimacy of cryptographic assets. How? Any chance of double-spending or counterfeiting of cryptocurrency assets is eliminated by cryptography.
What purpose does it serve to compare cryptocurrencies with crypto tokens if both are digital assets? The fact that cryptocurrencies are native assets on blockchain networks is the main distinction between the two digital assets in the crypto sector. Cryptocurrencies include, for instance, BTC on the Bitcoin blockchain or ETH on the Ethereum blockchain.
On the other hand, crypto tokens are produced to provide further functionality on platforms built on top of already-existing blockchain networks. For instance, a large number of ERC-20 tokens in the Ethereum ecosystem are cryptocurrency tokens. However, the distinction between cryptocurrencies and tokens goes beyond this single point of differentiation. You can find many additional differences between cryptocurrencies and crypto tokens by thoroughly comprehending each.
Also, read – The Differences Between Delegated Proof of Stake And Proof of Stake
What is cryptocurrency?
Cryptocurrencies can be traded as a medium of exchange. One of the main points of comparison between cryptocurrencies and tokens is their fundamental definition. In essence, a cryptocurrency is a blockchain network’s native asset. As the native currency of the blockchain network, cryptocurrencies are issued by the blockchain network protocol itself. In addition to acting as the preferred method of payment for transaction fees on the blockchain, cryptocurrencies also serve another significant function in blockchain networks. Additionally, users are rewarded with cryptocurrencies on blockchain networks for securing the network.
- The main benefit of cryptocurrencies is their decentralization, as no single entity is in charge of issuing new units. In contrast, cryptocurrencies rely on code to control transactions and create new coins.
- Automated and unreliable system rule enforcement is made possible by cryptocurrencies’ Distributed Ledger Technology (DLT) capabilities.
- The value of cryptography for the security of the underlying network and infrastructure for a problematic cryptocurrency is what matters most of all.
The meaning of a crypto token
The definition of crypto tokens is the next crucial condition for distinguishing between cryptocurrencies and tokens. Crypto tokens are fundamental units of value created by blockchain-based projects or businesses on top of already-established blockchain networks. They are comparable to cryptocurrencies in terms of fundamental characteristics like decentralization, transparency, and cryptographic security.
On the other hand, cryptocurrency tokens belong to a totally different class of digital assets. Like cryptocurrencies, crypto tokens can act as both a store of value and a medium of exchange. On the other hand, crypto tokens can also stand in for particular digital services or utilities and tangible assets. For instance, you can find cryptocurrency tokens that represent art and real estate.
Developers can use smart contracts to create cryptocurrency tokens and deploy them on existing blockchains for specific projects. The use of smart contracts suggests that the main blockchain protocol has not been used to develop the behavior of crypto tokens. On the other hand, how crypto tokens are implemented in smart contracts significantly impacts how they behave.
When addressing the question “Is cryptocurrency the same as a token?” with an emphasis on more than just payments, the fundamental purpose of crypto tokens also serves as an important highlight. Cryptocurrency tokens can contribute to the extensive blockchain platform ecosystem by performing a variety of functions. For instance, you can use cryptocurrency tokens to promote user interaction and creativity within a blockchain network community.
Cryptocurrency tokens can also be used as prizes for taking part in events on a blockchain platform. The majority of crypto tokens serve as the cornerstone for the thriving dApp ecosystem on Ethereum, which is the most crucial aspect of all.
Key differences between Crypto Tokens and Cryptocurrencies
The fundamental knowledge of cryptocurrencies and crypto tokens provides a starting point for exploring their differences. Some of the differences must have been obvious based on a fundamental analysis of cryptocurrencies and tokens. Here are some key differences between cryptocurrencies and tokens that you can find.
There is a difference between a crypto “coin” and a “token” 👇🏼🧠 pic.twitter.com/tv6SgidQAa
— MASON VERSLUIS 🏆🔮 (@MasonVersluis) September 25, 2022
Obviously, the first distinction between cryptocurrencies and tokens relates to their definitions. A blockchain network’s native currency is a cryptocurrency that is created by the principal blockchain protocol. Bitcoin is the ideal illustration of a cryptocurrency.
On the other hand, the development of crypto tokens enables smart contracts to be used on blockchain platforms to serve specially targeted functionalities. The cryptocurrency used by the Ethereum blockchain is called ether, or ETH. However, a lot of other cryptocurrency tokens exist that make use of the Ethereum blockchain’s strength. DAI, CryptoKitties, COMP, and LINK are a few examples of crypto tokens developed using the Ethereum blockchain.
The fundamental design that underpins cryptocurrencies and tokens would be the next important consideration in a comparison of the two. The blockchain protocol has built-in logic for cryptocurrencies. You can tell that cryptocurrency units are only integrated into the blockchain software’s protocol as a result.
On the other hand, programmable logic in smart contracts that have been implemented on current blockchain networks can be used to implement crypto tokens. Smart contracts, which underlie crypto tokens, can be customized by developers for a variety of uses. Examples of security tokens and utility tokens can be found as encouraging highlights for determining the adaptability of use cases for crypto tokens. Typically, crypto tokens are created in accordance with particular token standards like ERC-20 and ERC-721.
Cases of Use
An explanation of how cryptocurrencies and crypto tokens differ can be seen clearly by looking at their use cases. The outline of their use cases is the most obvious difference between tokens and cryptocurrencies. In fact, the use cases for crypto tokens and cryptocurrencies provide important information for more clearly defining the differences between cryptocurrencies and tokens.
Uses for cryptocurrencies
Blockchain networks can use cryptocurrencies to reward users for securing the network. But the primary functions of cryptocurrencies as a store of value and a means of exchange are what they are used for. As you can see from the Bitcoin example, cryptocurrencies can act as a store of value. It focuses on enabling decentralized transactions to provide an effective substitute for traditional banking.
Centralized ledgers are no longer necessary for Bitcoin, and it has evolved into a trustworthy store of value. The discussion of cryptocurrencies versus tokens would also center on the functions of cryptocurrencies as electronic money. For instance, Dash uses its PrivateSend functionality to offer anonymous digital transactions.
The ability to make international payments using cryptocurrencies is another significant use case. The Ripple blockchain network’s XRP cryptocurrency illustrates how real-time international transactions can be carried out more quickly and simply. XRP can efficiently handle global remittances without the need for any convoluted and centralized counterparty approval and clearance processes.
Use Cases for Crypto Tokens
The uses of crypto tokens go beyond their typical roles as a medium of exchange and a store of value. By identifying the use cases for crypto tokens, you can clearly see tokens versus cryptocurrencies. One of the most important uses for cryptocurrency tokens comes from the smart contract features that are built into them.
Numerous value advantages can be introduced through crypto tokens based on smart contracts in various industries, including the real estate sector. For instance, the automation and decentralization of real estate sales processes can greatly benefit from the use of crypto tokens. Basic protocols for automating transactions in accordance with mutually agreed-upon terms in contracts are known as smart contracts.
The use of crypto tokens in decentralized applications (dApps) is another important distinction between cryptocurrencies and tokens in crypto tokens’ favor. The ecosystem of decentralized applications is constantly changing, and crypto tokens are an essential component of that ecosystem. The importance of crypto tokens in the recently developing NFT and DeFi ecosystems across various gaming and lending platforms cannot be overstated.
Additionally, as demonstrated by the example of Golem, crypto tokens also act as the building blocks for supercomputer platforms. It is the first decentralized supercomputer that uses only data centers and individual computers around the world for power. Cryptocurrency tokens power a significant portion of the Golem supercomputer.
Digital user identities are a noteworthy mention among the use cases for crypto tokens. For instance, the Civic token provides a decentralized digital identity solution. Access to various digital services can be verified with the Civic token.
You may now have a slightly different perspective on the question, “Is cryptocurrency the same as a token?” than you did at the outset of the conversation. The many-minute variations between cryptocurrencies and tokens are discernible. The fundamental description of cryptocurrencies and crypto tokens, along with their design and functionality, sheds a lot of light on their distinctions.
Simply put, you can think of cryptocurrencies as limited-use objects and crypto tokens as the representatives of decentralization opportunities. Cryptocurrency tokens, for instance, may pave the way for new ways to represent tangible assets on blockchain networks. Learn more about the cryptocurrency industry and how future developments in digital assets will affect it.