Cryptocurrency vs Tokens – What’s the difference

• Ayushi Abrol
• April 19, 2022

Blockchain is the latest trend in technology and everyone wants a share of it. The blockchain platform is one of the best platforms right now for both investment and the development of new technologies. However, getting to know about it is rather difficult and without this information, it is impossible to get into it. Now there are a lot of terms in Blockchain technology that often confuses the users. However, the most common of those terms are Tokens and Cryptocurrency. People often used to understand that token and cryptocurrency are the same thing and can easily be invested in just like the stock market, but both of them are very different. This article will help you understand the difference between cryptocurrencies and tokens and how both of them are used in the world of blockchain with different functionalities and purposes for a user. These are the same details that will be conveyed by a certified cryptocurrency expert or a cryptocurrency auditor. 

These are basically Digital Assets

Before getting to the difference between the two, one must understand that both are a part of the blockchain platform and both the terms are used interchangeably. Both Tokens and cryptocurrencies are digital assets of the blockchain platform. In a broader aspect, digital assets can be defined as non-tangible assets which can be created, traded, and stored in digital format in a wallet. Digital assets can include cryptocurrency and crypto tokens. It is important to understand what a digital asset is in order to understand the difference between Cryptocurrency and Tokens. When we talk about cryptocurrency and tokens, they are basically a subclass of a digital asset that uses the cryptography and encryption technique of the blockchain platform. Due to this, these digital assets cannot be duplicated for any kind of counterfeiting. 

 

Definition of Cryptocurrency and Tokens

When it comes to the difference between the two, Cryptocurrencies can be defined as the native assets of blockchain, just like Bitcoin, Ethereum, etc. On the other hand, tokens are built on existing blockchain architecture using smart contracts, which are mostly EIP-20 tokens. While cryptocurrency is used more as a form of digital value, just like money, it is traded in the crypto platform, where the price of these cryptocurrencies fluctuates. Whereas, tokens are basically used as a unit of value that is developed over an existing blockchain network. Also, these are used with smart contracts for the development of special functions. These tokens have programmable logic unlike cryptocurrency and this programmable logic can be used in smart contract deployment to a blockchain.

 

Cryptocurrency

can simply be termed as the digital money of a digital economy that blockchain is currently developing. It is a native asset of a blockchain network that can be used for trading, as a medium of exchange, and also as a store of value. It is directly issued by the blockchain protocol on which it runs and is termed as blockchain native currency. The main purpose of cryptocurrency is to be used as a medium to pay the transaction fees on a network or simply to provide them as an incentive to the users who keep the network secure. Overall, the users can term it as a medium of exchange, which can be used to acquire goods or services, similar to what one does with real money in the physical world. The three major characteristics of Cryptocurrency are:

• It is not dependent on any kind of central issuing authority like RBI for banks, which means it is completely decentralized. Due to this, it only relies on code to manage issuance and transactions.
• Cryptocurrencies are based on Blockchain and Distributed Ledger Technology (DLT), allowing the rules of the system to be applied in an automated and trustless fashion. As per certified cryptocurrency expert, Cryptocurrency uses cryptography to secure and safeguard the structure and network.

Pros:

• The best thing about cryptocurrency transactions is their speed. They can be done in minutes.
• The transaction cost for cryptocurrency transactions is very low compared to other financial services.
• Anyone can use crypto. You only need a smartphone or computer and an internet connection. It is much faster than opening an account at a traditional bank to set up a cryptocurrency address.
• All cryptocurrency transactions are recorded on the publicly available blockchain ledger. Tools enable anyone to access transaction data, including the location, time, and amount of cryptocurrency sent from a wallet address. You can also view how much cryptocurrency is in a wallet.
• Cryptocurrency offers investors diversification from traditional financial assets like stocks and bonds.

Cons:

• Some people are concerned that cryptocurrency is too expensive. 
• One of the most common cryptocurrency cons is fraudulent giveaways. 
• Fake initial coin offerings (ICOs) are fake campaigns used to get investors to invest. 
• Despite the lack of regulation, people continue to use them. Many people have lost their entire life savings using them. For these reasons, cryptocurrencies are not for everyone.
• The main drawback is that these currencies are highly volatile.

 

Tokens

Tokens are also referred to as Crypto Tokens and are basically a unit of value that companies create on the top of existing blockchain networks. For example, the native token for the Ethereum blockchain network is called ETH. While many other crypto tokens have also been created utilizing the existing Ethereum network which are LINK, COMP, crypto kitties, etc. Each of these tokens might have various functions depending on the platforms they are built for using smart contracts. 

There is a huge variety of tokens that currently exist in the market and most of them utilize the Ethereum blockchain network. As per crypto auditor, they use the ERC-20 token standard most commonly as it interoperates with Ethereum Ecosystem. They also use ERC-721 which enables non-fungible tokens, which are unique and cannot be interchanged with any other token. These tokens are often used by platforms to issue a token to the user for providing an NFT and the token has all the information of the owner and transactions coded to it. Due to their use, the number of tokens available on the network is constantly increasing every day. 

• Tokens are programmable
• They are also permissionless 
• They are decentralized which means that no central authority can control it and it runs on the regulation put down by the network protocol. 
• The transactions and protocol are viewable and verifiable by all the users having the tokens which makes it completely transparent as well.

Apart from holding a value, the same crypto tokens can also be used to digitally represent a physical asset or a certain utility or service. For example, the same crypto tokens are also used by people in real estate to show their ownership for it, since the ownership and transaction can be coded on these tokens. Therefore, a single token can represent real estate as well. Apart from that, it can also hold information like data storage and processing power details. Tokens are also an important part of the governance mechanism for voting on parameters like upgrades in the protocol and decisions that affect the blockchain project’s future. 

Pros:

• The first advantage is the ability to be used by anyone globally.
• Tokens can also lead to reliance on the platform for rewards. Tokens have their limitations. But they can help in the long run.

Cons:

• Their security has been the subject of discussions since its inception.  
• Tokens are not a good option for businesses seeking to raise funds.
• Further, they encourage people to use the reward too much, resulting in a problem when task separation is needed. 

With the increased use of Blockchain technology in various segments of the market, the use of tokens has also increased. The number of digital assets like tokens has increased at a large rate in the last few years. It continues to grow with the increases in the multifaceted needs of the blockchain ecosystem. Since the difference between the real and digital world is decreasing day by day, they are being represented as digital assets and it is where countless industries and individuals have started using tokens. 

Differences between Cryptocurrency and Tokens

 

Features	CryptoCurrency	Tokens
Blockchain platform	It is native to blockchain	It is built on an existing blockchain architecture
Transactions	Transaction of cryptocurrency are handled by blockchain	Tokens are handled by smart contracts
Representation	Represents the underlying value of the blockchain	Represents assets or deeds
Value	It represents what the beholder is capable of owning	Token represents what users actually own
Use	Best used to buy a product	Best used to buy a utility

 

Blockchain platform

While cryptocurrency is native to the blockchain platform, tokens are created on the existing blockchain platform. For example, the Ethereum platform has a native cryptocurrency named ETH, while there are many tokens that are based on the existing architecture of Ethereum like COMP, LINK, etc. These are basically smart contracts that are created depending on companies’ requirements, using the existing Ethereum platform.

Transactions

Cryptocurrencies transactions are basically recorded and processed on the blockcahin platform in a decentralized environment, whereas the tokens are processed through the smart contract which has predefined and automated protocols.

Representation

Cryptocurrency is native to the blockchain environment and represents the underlying value of a product or commodity purchased through it. The underlying values can be gold, oil, artwork, real estate, and a lot more. Token on the other hand does not represent the value of the same but the deeds and assets. Using the smart contracts, the token represents the ownership and history of transactions of the asset.

Value

Cryptocurrency does represent the actual capacity of the beholder of owning a commodity or something they can own using the value of cryptocurrency, whereas the Tokens represent what the users actually hold by coding the ownership data and transaction in it. Therefore, cryptocurrency shows what the user is capable of owning and token shows what users already own.

Technology

Cryptocurrency is basically designed in a way that represents what the native blockchain platform has been created to do. If the blockchain platform has been created to resolve the payment issues through cryptocurrency in the Metaverse, then the same will be represented by the cryptocurrency as well. However, Tokens represent the kind of smart contracts that will be used to resolve certain requirements of an individual or company, based on which its protocols are made.

Use

If you want to buy a product in the digital world then cryptocurrency is suited for it as it represents a certain value. However, if you want to buy a utility or service that will be created for you, then tokens are very useful.

Verdict

Here are some of the major differences between a token and a cryptocurrency. Although both of them are almost the same, they do differ in fundamentals. Both of these are the different sides of the same coin as per the crypto auditor. The blockchain platform has risen to great heights in the past few years and since then it has attracted a lot of people. Due to this popularity, cryptocurrency and tokens have developed over time and are now being used in almost every operation of the blockchain. At the basic level, all coins are considered tokens, but not all tokens are considered crypto coins. 

 

There are currently thousands of users, who have been using tokens for various services where it is completely defined by the requirements of the users and what kind of functions they want from it, based on which the smart contracts are made. Similarly, cryptocurrency has been developing globally to create a parallel economy for the Metaverse or the digital world, which does not require physical money and works with cryptocurrency. Due to this, cryptocurrency is being adopted by many known companies and financial institutions as well. It has not only created a more transparent system but also a stronger financial system.

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