In a time where more people and industries are adopting the concept of digital assets, it’s easy to get lost in the new vocabulary that these concept comes with. As a newbie myself, I had a tough time learning and understanding what these terms and new buzzwords were.
Cryptocurrency and tokens are distinctive subsets of digital assets that uses cryptographic means to ensure the authenticity of assets by removing the prospect of forgery. They share a lot of similarities and that has caused a bit of confusion in correctly distinguishing between a cryptocurrency and a token.
How are they similar ?
Cryptocurrency and tokens demonstrate the following similarities:
They both appear on the blockchain or some other distributed ledger technology. The blockchain tracks cryptocurrency and tokens, as they change hands. Individuals and companies store these assets that they own in digital wallets.
They both represent value, can process payments and be exchanged. Cryptocurrency can be swapped for tokens and vice-versa.
These similarities can be misleading in thinking that they are the same. But the differences, once explained, would help in distinguishing what these digital assets really are and the purpose they uniquely serve.
How are they different ?
We have seen how cryptocurrency and tokens are similar. However, there are technical differences between the two:
Cryptocurrencies are the native asset of a specific blockchain protocol, whereas tokens are created by platforms that build on top of those blockchains. In simpler terms, I’d say that tokens operate on a cryptocurrency’s blockchain. A typical example is ether and basic attention token (BAT). Ether is the native asset of the ethereum blockchain, while BAT (and every other currency on the ethereum blockchain) is a token implemented on the ethereum blockchain.
Tokens, like cryptocurrency, can hold value and be exchanged, but the striking difference between them is that tokens can also be designed to represent different sets of digital assets, or a certain utility. For instance, there are tokens that represent tangible assets such as real estate and art, as well as intangible assets such as processing power or data storage space. Recently, tokens have been implemented to represent NFTs (non-fungible tokens). Essentially, cryptocurrency is a digital version of money whereas tokens can stand for assets depending on the purpose of its creation.
Conclusion
The potential of blockchain technology is massive. Cryptocurrency and tokens will continue to get accepted and adopted as time goes on and this will only drive up there values and utility.