What are cryptocurrencies & Tokens: Difference, Uses & More
Posted in FinTech

What are cryptocurrencies & Tokens: Difference, Uses & More

While a cryptocurrency operates independently and uses its own platform, a token is merely a cryptocurrency built on top of another pre-existing blockchain. Ethereum’s programmable and flexible smart contracts are part of the reason why it has become the world’s second most valuable cryptocurrency. A look at the top tokens shows that nearly all run on the Ethereum blockchain. The biggest similarity between coins and tokens is that both of them run on the blockchain and can be transferred between peers. Coins can also be used for tokenization and they may also serve as utility or governance tokens, or even have blockchain-specific use cases. For some projects, the application is unusable for anyone who doesn’t own the tokens, since the core functionalities of the application require the token.

The basic understanding of cryptocurrencies and crypto tokens offers a basic ground to start uncovering the differences between them. You must have predicted some of the differences from a fundamental overview of cryptocurrencies and tokens. Here are some of the notable differences you can find in cryptocurrencies vs. token debate. All examples listed in this article are for informational purposes only.

Therefore, a token is any crypto issued on another blockchain project, typically a smart contract blockchain like Ethereum. Although most of today’s tokens are on Ethereum, any digital asset built on another blockchain qualifies for this category. These include fungible and non-fungible tokens (NFTs) on competing blockchains like Solana, Cardano, and the BNB Smart Chain. Blockchain developers can release tokens on any blockchain, but Ethereum is a common choice. In fact, the category of tokens didn’t take off until Ethereum introduced smart contract technology. Smart contracts make it easier for developers to launch dApps (decentralized apps) using blockchains like Ethereum.

When talking about cryptocurrency, the words “coin” and “token” are sometimes used interchangeably. Tokens, on the other hand, provide purpose and utility to the network’s users, promoting the network’s growth in relevance and users. While that may sound trivial compared to security, each of these assets play a valuable role.

Asset Tokenization

For instance, there are crypto tokens that represent tangible assets such as real estate and art, as well as intangible assets such as processing power or data storage space. The process of creating crypto tokens to serve these various functions is known as tokenization. While both terms are somewhat interchangeable, we listed some subtle differences in this blog post for you to take away. While they serve a specific purpose within their networks, crypto coins can also be used as currency. Tokens, on the other hand, typically use existing blockchains to expand and improve the functions of those networks or develop processes of their own. Some tokens can be tradable currencies, while others serve as digital representations of ownership.

These standards make it easier for crypto tokens to be stored, used, and exchanged on a blockchain in the same way as the chain’s native cryptocurrency. Running nodes costs money, both in the form of hardware and electricity. So blockchain networks need a financial reward system to incentivize people to operate nodes. To compensate node operators for their costs, and the work of processing, validating, and adding new transactions, each blockchain will have a corresponding cryptocurrency.

This means that swapping, lending and transferring these tokens is much easier and more secure than swapping different crypto coins. So naturally, their innovation opened the door to platforms capitalizing on this interoperability. Cryptocurrency-based tokens are typically issued on blockchain or distributed ledger technology (DLT)-based platforms and they usually represent fungible and tradeable digital assets. Tokens are also referred to as Crypto Tokens and are basically a unit of value that companies create on the top of existing blockchain networks.

  • Tokens are merely a subset of cryptocurrencies which are built on top of other blockchains.
  • Cryptocurrency is described as the “native” digital asset of a blockchain network because it powers the network itself.
  • For example, BTC on the Bitcoin blockchain or ETH on the Ethereum blockchain is cryptocurrencies.
  • Tokens are useful for many purposes, including stablecoins, gaming, initial coin offerings (ICOs), and creating new tradable assets.

For example, you can find applications of cryptocurrency tokens for driving user engagement and innovation in a blockchain network community. If you https://www.xcritical.in/blog/cryptocurrencies-vs-tokens-differences/ are trying to find answers for “Is cryptocurrency same as token? In the world of blockchain, cryptocurrency and crypto tokens are digital assets.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The majority of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. 77.48% of retail investor accounts lose money when trading CFDs with this provider. Other examples of cryptocurrency tokens include Shiba Inu Coin (SHIB), Chainlink (LINK), Cronos (CRO), and Uniswap (UNI).

The Top 5: Which Are The Most Traded Currency Pairs?

Many blockchains are decentralized, and smart contracts allow for interoperable tokens and self-executing code. Using these two innovations, decentralized exchanges went from pipe-dream to reality. Put simply, smart contracts allow the easy creation of digital assets which are all interoperable on a specific network.

HCLTech Sets Foot in Morocco with New Global Delivery Centre in Rabat, Strengthening Nearshore Services

A utility token grants its holders access to a company’s future product or service before it can be delivered, much like when a bookstore accepts pre-orders for a book that’s yet to come out. Security tokens are similar to traditional shares because their value is derived from a tradable external asset. Enhance or build your brokerage business from scratch with our advanced and flexible trading platform, CRM, and a wide range of custom solutions. The more general term “crypto” is often used to collectively refer to the entire asset class. MicroStrategy’s BTC holdings averages at 74.3% of its total balance sheet assets, since its first purchase of 21,454 BTC in August 2020. Please note that the availability of the products and services on the Crypto.com App is subject to jurisdictional limitations.

A store of value is an asset, commodity, or form of currency that can be stored and retrieved at a later time without depreciating in value. A cryptocurrency is a native asset of a blockchain, insofar as the blockchain was built to maintain it. They are decentralised, without a leading authority to look over them like traditional currency handling institutions. If you want to know more, you can take a look at our blog article detailing all the benefits and drawbacks from cryptocurrencies.

There are also businesses like McDonald’s, Overstock.com, and Tesla experimenting with cryptocurrency payments. The reason many people confuse crypto coins with cryptocurrencies is because of the word “currency.” Crypto coins are https://www.xcritical.in/ often used as mediums of exchange. However, this common use case isn’t what sets digital coins apart from tokens. Cryptocurrency coins are independent digital currencies that run autonomously on their own blockchain networks.

Share this post

Start typing and press Enter to search

Shopping Cart

No products in the cart.