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Cryptocurrencies and Tokens: The Difference Between Both Crypto

In the technological environment of crypto assets, tokens have very defined characteristics, but on many occasions this term is confused or even used as a synonym for the well-known cryptocurrencies . This inaccuracy stems from the fact that both concepts describe units of value found in a blockchain .

To better understand these two concepts, it is first necessary for us to be clear about what a cryptocurrency is and the different characteristics of a token .

Cryptocurrencies

A cryptocurrency is a digital asset built to function as a means of exchange, which are carried out through electronic transactions using encryption techniques with technology called cryptography, which ensures the transactional flow. Let’s say that cryptographic technology allows different agents to securely transmit to each other.

When we think of cryptocurrencies, the first thing that comes to mind is probably Bitcoin , which is actually the father of all cryptocurrencies, its creation marked a before and after by being the first to apply a powerful cryptographic system on a platform that registers and validates chronologically all the transactions carried out.

The first blockchain was conceived by its creators as an open source or open source system, which led to the origin of several projects based on this protocol. With some of these projects, new uses were discovered, which essentially involved the emergence of various cryptocurrencies called altcoins .

Cryptocurrencies and Tokens

Altcoins

Altcoins are nothing more than alternative currencies to Bitcoin , since the distinction is made as Bitcoin is the first currency of all, these new cryptocurrencies were created as an alternative to the original protocol.

Within the altcoins we find two types, those that come from the original protocol with certain added variations (Dogecoin or Litecoin) and those that come from their own blockchain created from scratch with a native cryptocurrency (Ethereum).

Tokens

Despite having been a popular concept in the digital world, tokens or tokens in Spanish have their origin in the physical world. One of the first examples of tokens in the physical world is found in the landowners of the 19th century, where workers were paid with tokens , which they could exchange for food within the landowner himself, but outside of it they did not have any type of worth. Currently an example of a physical token would be the chips of a casino , within this they have a value and are accepted by the casino itself and by the players within it, but a €500 chip outside the casino is worth nothing.

In the book the business blockchain , the token is described as “a unit of value that an organization creates to govern its business model and give more power to its users to interact with its products, while facilitating the distribution and sharing of benefits between all its shareholders.

Tokens are usually part of Fintech projects , in which these tokens can represent an asset or have a specific utility. As in cryptocurrencies, their value is accepted by a community and they exist in a blockchain, but in the case of tokens, these are not only a means of payment, since they can represent any fungible and negotiable asset.

The tokens are created on top of the protocol of a cryptocurrency that already exists on a given blockchain. Most of the tokens see their origin in an ICO or Initial Coin Offering, a process by which the project raises capital from its investors in order to be able to continue developing the project in the best way, in exchange for said investment the investors would obtain a number of tokens that will have a utility or value within the project

In summary…

Cryptocurrencies and tokens have many similarities as they both represent a unit of value, are accepted by a community, and exist on a blockchain. The main difference between both cryptoactives is that the cryptocurrencies work on their own block chain, while the tokens are created on existing block chains or blockchains, in addition to the fact that the latter cannot be mined. And finally, as we have mentioned, tokens can have more uses than a mere means of payment.

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