Are cryptocurrencies and tokens the same?
Many people wonder if it is the same cryptocurrency and token , since these concepts of the digital world are very easy to confuse, so in this post we are going to focus on clarifying the differences.
What is a cryptocurrency?
A cryptocurrency is a digital currency that is encrypted through the use of cryptography. Cryptography is the field of cryptology that deals with encryption techniques.
Starting from this base, the cryptocurrency is created in order to be used as something similar to money, fulfilling the characteristics and functions of money. Transactions with this asset are recorded in a ledger distributed by the network of nodes of the cryptocurrency development services network in question using blockchain technology that provides these essential characteristics to the currency:
Main characteristics of cryptocurrencies
Security: it is almost impossible to falsify the cryptocurrency since to do so, a greater computational power is needed than that of the network of nodes. In the case of wanting to fake a bitcoin , a more powerful network would be needed than the one that companies like Google have.
Decentralization: cryptocurrencies are not controlled by any central bank or institution. Transactions are carried out ‘’peer-to-peer’’, that is, between the parties, without intermediaries.
Anonymity: to carry out transactions with cryptocurrencies , you only need to have a cold wallet or hot wallet .
Examples of these cryptocurrencies would be: the well-known bitcoin , Litecoin , Ether , and DigitalCash (DASH).
What is a token?
A token represents an alphanumeric string that can be a public or private key. In the context of computer programming, a token is an element in a programming language. It is for example, a punctuation mark, an operator, an identifier, etc.
In the context of networking, a token is a special series of bits that travel across token-ring networks. Tokens act like tickets, allowing their owners to send a message across the network. There is only one token per network, so there is no chance of two computers trying to transfer messages at the same time.
The token describes elements similar to coins that give the right to possess a certain amount of goods or services, created by the distributor of said goods or services.
So a token can represent a currency , a property, a stock, a financial asset, it can be anything in the real world.
Today there are three types of tokens:
Different types of tokens
An example: the ‘’Colored Coins’’.
A clear example can be the ‘’Colored Coins’’ are small parts of bitcoins, which have been modified with the introduction of a specific code, so that this part represents another asset, then, we could have a bitcoin with a business action or a property ‘’inside’’, which would cause bitcoin to have a secondary value.
In conclusion, every cryptocurrency is a token, but not every token is a cryptocurrency, since these can represent another asset.
Main differences between a cryptocurrency and a token
In reality, the two terms are frequently interchanged or confused, and cryptocurrencies are quite particular in terms of their use as a means of payment and a store of value. However, in practice, there is no clear agreement on either term and they are frequently confused. A token is viewed as the major block behind every single computerized exchange, from the most fundamental to the most intricate.
The principle distinction between a token and a cryptographic money is that digital currencies utilize their own blockchain, while tokens utilize the blockchain of one more digital currency to work. The ERC 20 standard was made by Ethereum to make tokens with brilliant agreements.