The cryptocurrency and blockchain universe are composed of multiple terminologies that are usually known to people. With time however, these terms have taken up new meaning. You might be interested in crypto or blockchain purely out of academic reasons. However, the differences between various terms must be clear to everyone. This is because it impacts your investment exercise and you won’t be able to earn profits if you don’t get your facts correctly.
There are many who think cryptocurrency is the same thing as crypto token. As a result, a lot of confusion ensues. The truth is that these terms are not synonymous, regardless of the fact that they might appear the same. Cryptocurrency constitutes crypto tokens. The following sections will elaborate more on these differences. It will also help the investors to acquire a better understanding of the Bitcoin trading system.
Defining Cryptocurrency
Cryptocurrency can be defined as the native asset in a blockchain network. You can trade cryptocurrency, use it a medium of exchange, or even store value using it. Cryptocurrency is usually issued via blockchain protocols directly. It runs on them and is therefore referred to as the native currency of blockchain. In most cases, cryptocurrency pays for the transaction fees on the network. It is also used for incentivizing investors for keeping the network of cryptocurrency secure.
The most frequent function of cryptocurrency is to act as a medium of exchange and for storing value. As the former, you can use cryptocurrency to purchase goods and services. As the latter, you can use cryptocurrency to hold or exchange fiat currency sometime late without having to incur any substantial loss in your purchasing capacity. The features of cryptocurrency can be listed as follows:
- Cryptocurrency is decentralized, that is it doesn’t depend on central authority for issuing. On the contrary, cryptocurrency is dependent on a code that manages the transactions.
- Cryptocurrency is built on DLT or Distributed Ledger Technology. This allows the investors to enforce regulations in the system automatically in a trustless manner.
- Cryptocurrency uses cryptography for securing its underlying network system and structure.
Defining Crypto Token
Crypto Token on the other hand is issued by some organisation that is then accepted by a community and endorsed by the existing blockchain. Crypto Token is a subset of cryptocurrency and is built on other blockchains.
Every organisation creates crypto tokens in a manner that suits a particular business model. This enables the user to interact and distribute rewards among the participants of the network. Crypto tokens have multiple uses and are broadly divided into security tokens and utility tokens.
The former is quite similar to the traditional shares that one holds. This is because its value is the derivative of an external asset that can be traded. Security tokens are issues in ICOs or Initial Coin Offerings. Once the regulatory authority decides upon the requisite framework, they will end up being treated as regular securities. Utility token on the other hand provides access to the future product of a company prior to its delivery. It’s a lot like a bookstore that accepts pre-orders of a book that hasn’t yet been released officially.
Since there is no direct relationship between the value of the crypto token and its ownership, they are usually exempt from laws and applicable on the security counterparts. They are generally helpful in fundraising activities. Companies can forego traditional methods and go straight to the customers.
Difference betweenThe Two
If you want a proper understanding of the cryptocurrency and blockchain universe, a complete awareness of the different and their definitions is crucial. Both the items discussed previously have been used interchangeably for a very long period. This has only contributed to the confusion. However, now you know that they are not the same.
Cryptocurrency operates on its own and also uses an independent platform. Crypto token on the other hand is cryptocurrency that is built above a blockchain that is already existing. In other words, all tokens are cryptos but all cryptos are not tokens. From the perspective of the investor, this difference is crucial as it gives them a measure of assessing the potential of a crypto asset.
When you analyse an independent crypto, you will find out that it has numerous projects. Each of these has its own native tokens embedded in the blockchain. This is good enough evidence for you to trust the cryptocurrency as it has an increased earning potential. Blockchain is better when it has numerous applications.
However, you must look into other features as well, even though it’s a proper predictor of the successful cryptocurrency in the medium-term. When you are evaluating the potential value of a project based on crypto token, it is best when it’s supported by blockchain such as Ethereum or EOS. Ultimately, it’s the research that you conduct which will benefit you in the long run.
