Token vs Cryptocurrency: Primary Uses and Differences

Token vs Cryptocurrency: Primary Uses and Differences

Conversely, tokens on Ethereum (e.g., ERC-20) can be exchanged through internal applications amongst each other with minimal friction because they are built on standardized code protocols. Cryptocurrency coins operate on their own, independent network. To launch a new cryptocurrency network, the developers must create a new blockchain and enlist the infrastructure to make it work.

You can discover many other differences between cryptocurrencies and crypto tokens by understanding each of them comprehensively. There is an ongoing debate concerning the differentiation between coins and tokens. As a result, there are at least two main contrasting theories on their functionalities and applications. By explaining their features, this article aims to resolve the confusion on these two types of digital assets.

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Blockchain technology is open source, meaning any software developer can use the original source code and create something new with it. There are estimated to be more than 10,000 different cryptocurrencies in circulation at the time of this writing, and the figure keeps increasing. For reference, the number of cryptos surpassed 1,000 only four years ago.

cryptocurrencies VS tokens differences

They are a bit of a misnomer, as most of them are actually ERC-20 tokens (i.e., they operate on the Ethereum blockchain through a smart contract). The name lends itself to their primary function of being a medium of exchange. These cryptocurrencies are bootstrapped from scratch, and the broader network is designed explicitly to achieve a certain goal. For example, Bitcoin exists as a censorship-resistant store of value and medium of exchange that has a secure, fixed monetary policy.

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Cryptocurrency coins and tokens are digital assets that operate using blockchain technology. This means transactions in the two are recorded in an electronic and distributed ledger and verified by computers across the world. You can buy and sell both cryptocurrency coins and tokens online using a cryptocurrency exchange and store them in cryptocurrency wallets. Despite the similarities, coins and tokens are fundamentally different. This article will explain the fundamental difference between cryptocurrency coins and tokens. Crypto tokens often share deep compatibility with cryptocurrencies, but they are a different digital asset class.

The funds that are raised fuel the development of the project, and the investors make profits if the dApp is popular and the price of the utility token rises. The crypto market includes stablecoins that are pegged to fiat currencies, Bitcoin, and commodities like gold and real estate. When you want to say how much fiat currency you have in your pocket, you say you have 20 pesos or 30 euros. When you want to say how much cryptocurrency you have, you say you have 12 Ether or 0.05 Bitcoins or 15 Litecoins.

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This may be partly because terminology in the crypto universe is not always as straightforward as would be desired. And while they are both units of cryptocurrency, coins and tokens do have different functionalities. A standard defines the smart contract and the features of the token. Here we will take a look at the common standards for Ethereum-based tokens, as Ethereum is the most commonly used blockchain for launching tokens.

cryptocurrencies VS tokens differences

For example, if you want to send ether to a friend, you’ll have to set aside some ether to pay for the transaction. Gas fees are usually calculated as a small fraction of ether called gwei. As long as that blockchain remains online, the related cryptocurrency coin will also remain in existence. But, actually, it’s alright because you can swap your Bitcoin for Wrapped Bitcoin , which has been designed to work on Ethereum’s blockchain. They always retain the asset of the coin they’re mimicking, too, so a wBTC is the same value as one BTC. Being able to move between blockchains is currently a difficult thing to do, and wrapped tokens are one of the only solutions for it at the moment.

  • One relies on the existing blockchain to function and the other is part of each blockchain.
  • For example, there are governance tokens that have only one purpose — to give their holders voting weight.
  • The transaction cost for cryptocurrency transactions is very low compared to other financial services.
  • For example, Bitcoin exists as a censorship-resistant store of value and medium of exchange that has a secure, fixed monetary policy.

An initial coin offering is an unregulated means by which funds are raised for a new cryptocurrency venture. Even crypto tokens listed on a registered exchange can be scams. Many crypto tokens are listed on non-regulated exchanges outside of the United States.

For example, you can find crypto tokens as a representation of real estate and art. As mentioned above, the cryptocurrency market is broad and inclusive, to the point where digital assets called stablecoins have entered the arena. Stablecoins, since they’re called stablecoins, are best to be called coins.

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