|Cryptocurrency and Crypto Token|
What’s the Difference? Cryptocurrency and Crypto Tokens
The cryptocurrency market is still new and unregulated. It is always good to know the technical terms before you start investing.
- What is a cryptocurrency?
- What is a crypto token?
Cryptocurrency is now quite a common term. Most of us must have read about different types of cryptocurrencies and how they are traded. Some of us would have even invested in the lucrative but speculative digital asset class. While one should research the risks involved and the expected returns before making such an investment, it is equally important to understand the technical terms.
Sometimes we inadvertently use cryptocurrencies and crypto tokens interchangeably. Although they are similar, these two have fundamental differences and it is important not to confuse them. Both are digital assets. But cryptocurrencies have their own blockchain, while crypto tokens are based on an existing blockchain.
Difference Between Cryptocurrency and Crypto Token?
What is a Cryptocurrency?
A cryptocurrency is the ‘native currency’ of a blockchain, such as Bitcoin or Ether, and is issued directly by the blockchain protocol on which it runs. Cryptocurrencies are often used to pay transaction fees or incentivize users to keep the cryptocurrency network secure. Investors put their money in cryptocurrencies, as these currencies often serve as a medium of exchange to buy goods and services, or as a store of value to exchange for fiat currency, such as the Indian rupee or the US dollar, at a later date. with the hope of obtaining good returns or at least the same invested value. The price of Bitcoin in India stood at Rs. 28,16,137.87 Indian Rupee and the Ethereum price in India stood at Rs.1,94,290.37 Indian Rupee at 9:30 am IST on August 5.
Cryptocurrencies are decentralized, which means that they do not depend on a central issuing authority. They are built on a blockchain and have a distributed ledger so everyone can see the transactions. This allows for the application of the rules in an automated and impartial manner. These coins use cryptography, an encryption technique, to secure the underlying structure and network system.
What is a crypto token?
Crypto tokens often share deep compatibility with cryptocurrencies, but they are a different digital asset class. For example, Ethereum is a blockchain and its native token is Ether (ETH). But there are several other tokens, DAI, LINK or COMP, which also depend on the Ethereum platform.
Like cryptocurrencies, tokens can have value and can be traded. But a token can also represent physical assets or a utility or service. For example, some crypto tokens represent assets like real estate and art. The process of creating tokens and assigning value to them is called tokenization.
With the crypto industry growing at a rapid rate, these unique assets will continue to grow and people will continue to assign value to these tokens against the asset they will represent. A very simple description of a token would be that it is a “smart contract”. Basically rights management tools, these contracts can represent any existing physical or digital asset.
Crypto tokens basically represent a set of rules and each token belongs to a blockchain address. The person who has the private key for that address can access the respective token. And this person is considered the owner or custodian of that record.
We often come across people who use cryptocurrencies to refer to both: native currencies and tokens. Given the difference between them, a more correct use to refer to these two classes of digital assets would be to call them crypto assets.
- Cryptocurrency and Crypto Tokens: What’s the Difference?
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