Digital money and assets are becoming increasingly familiar, but not all users have handled crypto terminology yet. Quite often, you can come across two terms: token and cryptocurrency. Although they mean something similar on the one hand, the concepts have big differences in reality.
What Is Cryptocurrency & Its Types?
Cryptocurrency is a means of payment, the main ability of which is to be used as a unit of account. For the most part, it is decentralized, which means that no one can directly manage it except for the asset holders themselves. Banks, monetary authorities, and other branches of government and business do not manage cryptocurrency in any way.
One of the features of cryptocurrency is mining and staking. In other words, they can be received as a reward. This starts the process of issuing a cryptocurrency, during which the number of units of this means of payment increases in the system.
For the most part, the following types of cryptocurrencies are defined:
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- Bitcoin. Often, Bitcoin does not belong to a separate group, although it cannot be included in any of the other types. BTC gave rise to the whole history of cryptocurrencies, and its structure is still copied, although some additions and changes have been made to it.
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- Altcoin. All cryptocurrencies use this name except for BTC. After the creation of Bitcoin and the growth of its popularity, other developers began to use its code as the basis for their coins. One of their main goals is to solve the issues and shortcomings of the very first crypto. This group includes ETH, LTC, DOGE, and many others.
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- Stablecoin. This group includes cryptocurrencies, the value of which is tied to certain physical assets or backed by a reserve. Most often, it is used to prevent the need to constantly convert digital currency to fiat and vice versa. This group includes USDT, BUSD, etc.
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- Token. A coin tied to a specific project, without which it cannot exist.
Thus, a token is a type of cryptocurrency. Scale is one of the main differences between these two concepts, which is why they can mean the same thing, but not in all cases.
What Is a Token & Key Types of Tokens
The token has two interpretations in the cryptocurrency world. First, it is a concept that has a wide range of uses but a rather limited scope. They are issued by a company or a group of persons who determine the initial cost of a digital virtual unit. For their distribution, ICOs are used — public sales, in which everyone can participate. In this case, developers act as an issuing company, and Coinlist (for example) becomes only a platform for listing tokens.
Tokens can also be purchased at IEO, and then a crypto platform becomes an exchange organizer. These two selling methods have pros and cons, so IEO is a more reliable investment option, but it involves a third party — an exchange, which serves as an intermediary.
Second: a token is a digital key in the blockchain, which is required to ensure security for the information and personal data of a user. Thus, it can be called a digital signature, with which you can access the network.
But most often, you can find the first interpretation of a token since, with its help, users can receive dividends and implement their ideas within the project to which it is linked. And after all, an asset can be sold on an external exchange, where the value of a token will directly depend on the success of a parent company and a platform.
What Is Their Main Difference?
Cryptocurrency can exist without a token, but not vice versa. The reason is that a token is tied to a specific project. Without it, tokens cannot exist. But cryptocurrency lives on its own.
Differences:
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- a token does not have its own blockchain, and it uses a network that has already been created earlier (Ethereum, Binance Smart Chain, etc.);
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- a procedure for issuing cryptocurrencies is gradual (mining), and creators of tokens issue an entire volume of coins at once, distributing them at will to perform certain tasks;
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- a token has many use cases, but cryptocurrency is required solely as a means of exchange or payment;
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- cryptocurrency is larger than a token since it circulates throughout a blockchain and not just within a specific market of a project.
In some cases, a token can become a full-fledged cryptocurrency. This happened with Ethereum, which was originally created as a project based on its own blockchain. But over time, the ability to use smart contracts allowed ETH to become a full-fledged cryptocurrency due to extraordinary popularity of the network.
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