Home Token Coins, Tokens & Altcoins: Whats the Difference?
This article explores the subtle differences between cryptocurrency coins and tokens, and why the term cryptocurrency is a misnomer.
Cryptocurrencies can be extremely hard to wrap our heads around, especially since their underlying technology the Blockchain is shrouded in computing language and terminology that is technical in nature. This is a huge barrier to many who are interested to learn more about cryptocurrencies and blockchain technology. But do not worry! Well guide you in understanding key cryptocurrency concepts that is great for you to know. (See more:Guide to Common Crypto Terms)
Lets start with understanding the definition of cryptocurrencies. Cryptocurrencies are digital or virtual currencies that are encrypted (secured) using cryptography. Cryptography refers to the use of encryption techniques to secure and verify the transfer of transactions. Bitcoin represents the first decentralized cryptocurrency, which is powered by a public ledger that records and validates all transactions chronologically, called the Blockchain. Heres an overview of how the blockchain works:
(Source: The Bernie Group)
Although many cryptocurrencies have existed prior to Bitcoin, its creation marks an important milestone in the realm of digital currencies, due to its distributed and decentralized nature. The creation of Bitcoin precipitated the expansion of a lush and more diverse ecosystem of other coins and tokens, that are often regarded as cryptocurrencies in general, even when most of them do not fall under the definition of a currency.
(See more:Evolution of Cryptocurrency: The Problem With Money Today)
It is important to note that all coins or tokens are regarded as cryptocurrencies, even if most of the coins do not function as a currency or medium of exchange. The term cryptocurrency is a misnomer since a currency technically represents a unit of account, a store of value and a medium of exchange. All these characteristics are inherent within Bitcoin, and since the cryptocurrency space was kickstarted by Bitcoins creation, any other coins conceived after Bitcoin is generally considered as a cryptocurrency, though most do not fulfill the aforementioned characteristics of an actual currency.
The most common categorization of cryptocurrencies are:
Alternative cryptocurrency coins are also called altcoins or simply coins. Theyre often used interchangeably. Altcoins simply refers to coins that are an alternative to Bitcoin. The majority of altcoins are a variant (fork) of Bitcoin, built using Bitcoins open-sourced, original protocol with changes to its underlying codes, therefore conceiving an entirely new coin with a different set of features. A central concept of modifying open source codes to create new coins is called hardforks, which is further explained in this article. Some examples of altcoins that are variants of Bitcoins codes are Namecoin, Peercoin, Litecoin, Dogecoin and Auroracoin. (Read also:Bitcoins Civil War: How and Why?)
Fun fact: A software fork occurs when there is a change in the underlying programming protocol, resulting in the forking or split of the original blockchain. This usually results in the creation of a new coin. There are different types of forks such as hard fork, soft forkor accidental fork.
There are other altcoins that arent derived from Bitcoins open-source protocol. Rather, they have created their own Blockchain and protocol that supports their native currency. Examples of these coins include Ethereum, Ripple, Omni, Bitshares, NEO, Waves and Counterparty.
A commonality of all altcoins is that they each possess their own independent blockchain, where transactions relating to their native coins occur in.
Fun fact: The first Altcoin was Namecoin, which was created in April 2011. It is a decentralized open source information registration and transfer system
(Read also:Guide on Identifying Scam Coins)
Tokens are a representation of a particular asset or utility, that usually resides on top of another blockchain. Tokens can represent basically any assets that are fungible and tradeable, from commodities to loyalty points to even other cryptocurrencies!
Creating tokens is a much easier process as you do not have to modify the codes from a particular protocol or create a blockchain from scratch. All you have to do is follow a standard template on the blockchain such as on the Ethereum or Waves platform that allows you to create your own tokens. This functionality of creating your own tokens is made possible through the use of smart contracts; programmable computer codes that are self-executing and do not need any third-parties to operate. It really is super cool! Heres a look at the process:
Tokens are created and distributed to the public through an Initial Coin Offering (ICO), which is a means of crowdfunding, through the release of a new cryptocurrency or token to fund project development. It is similar to an Initial Public Offering (IPO) for stocks, with critical distinctions whichare explained in this article. Many are crazy over ICOs as they represent a great way of identifying interesting projects that can provide great financial returns.
Fun Fact: A template for token creation is wonderful since it provides a standard interface for interoperability between tokens. This make it so much easier for you to store different type of coins within a single wallet. An example is the ERC-20 standard on the Ethereum blockchain, which has is used by over 40 tokens
(Read more: Analyzing Cryptocurrency Risk: Existing Coins vs ICO)
The main difference between altcoins and tokens is in their structure; altcoins are separate currencies with their own separate blockchain while tokens operate on top of a blockchain that facilitates the creation of decentralized applications. The majority of coins in existence (close to 80%) are tokens, since theyre much more easier to create.
(You might also be interested inWill A Crash in Bitcoins Price Lead to Its Demise?)
If youre starting your journey into the complex world of cryptocurrencies, heres a list of useful resources and guides that will get you on your way:
Read also:Crypto Trading Guide: 4 Common Pitfalls Every Crypto Trader Will ExperienceandGuide To Cryptocurrency Trading Basics: Introduction to Crypto Technical Analysis.
Enroll in our Free Cryptocurrency Webinar now to learn everything you need to know about crypto investing.
Get our exclusive e-book which will guide you on the step-by-step process to get started with making money via Cryptocurrency investments!
You can also join our Facebook group at Master The Crypto: Advanced Cryptocurrency Knowledge to ask any questions regarding cryptos!
Read more from the original source:
Differences Between Cryptocurrency Coins and Tokens
- How Cryptocurrency Trading Has Evolved in Recent Years - Cointelegraph - February 23rd, 2020
- Bitcoin touches $9,500 as $31 billion wiped off cryptocurrency markets - Yahoo Finance - February 23rd, 2020
- Cryptocurrency Market Update: Hostility ousted as Bitcoin, Ethereum and Ripple make blissful moves - FXStreet - February 23rd, 2020
- Will Bitcoin Ever Be a Serious Alternative to Gold and Stocks? - The Motley Fool - February 23rd, 2020
- How This Cryptocurrency Platform Grew From Nothing to Top 5 Exchange Worth $1 Billion in 9 Months - newsBTC - February 23rd, 2020
- Top Cryptocurrency Analysts Say $100,000 Bitcoin Predictions Way Off Base Heres Where They Think BTC Will Land - The Daily Hodl - February 23rd, 2020
- Japan on the verge of national cryptocurrency? - Cryptopolitan - February 23rd, 2020
- The Fed's Cryptocurrency Head Fake | Opinion - Newsweek - February 23rd, 2020
- Why Venezuela's Oil Based Cryptocurrency Is Still Alive - OilPrice.com - February 23rd, 2020
- Top Analyst: Foul Play Pumped the Crypto Market by $66 Billion - newsBTC - February 23rd, 2020
- Russia to Ban Cryptocurrency as a Payment Method and Looking to De-anonymize All Crypto Users, Likely in Response to Accelerating Economic Weakness ... - February 23rd, 2020
- Swedens Central Bank To Begin Testing National Cryptocurrency - CryptoPotato - February 23rd, 2020
- How Cryptocurrency Favors Internet of Things (IoT) - HostReview.com - February 23rd, 2020
- Indicator That Signaled 4,593% Bitcoin (BTC) Rally Now Flashing But This Time Ethereum (ETH) Is the Coin to Watch, Says Crypto Analyst - The Daily... - February 23rd, 2020
- Ripple Battles XRP Scams, Launches Initiative to Combat Cryptocurrency Theft, Fake Giveaways and Financial Crimes - The Daily Hodl - February 23rd, 2020
- Cryptocurrency Price List - Top 20 Cryptocurrency Prices Today - February 9th, 2020
- How to buy Cryptocurrency - WorldCoinIndex - February 9th, 2020
- XRP Could Be Weeks Away from a Major Breakout Despite Overnight Rejection - newsBTC - February 9th, 2020
- Cryptocurrency Market Update: Ripple puts altcoins in the spotlight as NEO and Dash catch the pace - FXStreet - February 9th, 2020
- Draft Bill to Ban Encryption in the US Threatens Cryptocurrency Survival - Coingape - February 9th, 2020
- Ugandan Legislators Address the Role of Cryptocurrency in Pyramid Schemes - CryptoGlobe - February 9th, 2020
- Will MIT Transform Bitcoin (BTC)? New Tech Promises to Dramatically Boost Speed of Cryptocurrency - The Daily Hodl - February 9th, 2020
- Definition of a Cryptocurrency Fork; Why Are They Necessary? - Coin Idol - February 9th, 2020
- Three Reasons Why Bitcoin is Bearish, Explains Analyst - newsBTC - February 9th, 2020
- Keene Solidifies Position as Global Leader in Cryptocurrency Acceptance with Three More Businesses Onboard in January! - Free Keene - February 9th, 2020
- Wendy McElroy: The Narrative and Philosophy of Cryptocurrency - Bitcoin News - February 9th, 2020
- Samsung and Salesforce invest in cryptocurrency company - Decrypt - February 9th, 2020
- USA Is Looking Closely To Launching Its Own Cryptocurrency, According To Fed Governor Lael Brainard - CryptoPotato - February 9th, 2020
- Cryptocurrency Market Update: The tug of war begins as Bitcoin and altcoins consolidate - FXStreet - February 9th, 2020
- As Bitcoin Fails To Break Out, This Minor Cryptocurrency Has Surged By 400% - Forbes - February 4th, 2020
- This is not cool: Elon Musk attacks Twitter over impersonators scamming bitcoin from followers - The Independent - February 4th, 2020
- CQG Partners with DVeX to Offer Front-End Platforms to New Cryptocurrency Exchange - PRNewswire - February 4th, 2020
- Bitcoin Hits Weekly Low as Fears of a $37M Dump Grow - newsBTC - February 4th, 2020
- Cryptocurrency Taxes in the UK: What You Need to Know - Nasdaq - February 4th, 2020
- Bitcoin on Track for Best Q1 in Seven Years | Cryptocurrency News - Crypto Briefing - February 4th, 2020
- Why Are Governments Really Opposed to Cryptocurrencies? - Coingape - February 4th, 2020
- Bitcoin Could Fall Hard, This Textbook Indicator Shows - newsBTC - February 4th, 2020
- Will 2020 Be The Year Cryptocurrency And Blockchain Becomes Operational? - Forbes - February 1st, 2020
- This is the right amount of bitcoin to keep in an investment portfolio - CNBC - February 1st, 2020
- Top 5 Performing Cryptocurrency In Jan 2020: Ethereum Classic, Litecoin, Bitcoin SV are Among them - Coingape - February 1st, 2020
- XRP Q4 2019: Crypto traders had one shot to make 20% profit - The Next Web - February 1st, 2020
- Two types of cryptocurrency are now dominating the market - Decrypt - February 1st, 2020
- How does risk and reward work in cryptocurrency? - Coin Rivet - February 1st, 2020
- I took out a loan with cryptocurrency and didn't sign a thing - Mashable - February 1st, 2020
- Top 10 Most Read Cryptocurrency Whitepapers of 2019, Bitcoin Tops the Chart - Coin Idol - February 1st, 2020
- Singapore tightens AML restrictions on cryptocurrency companies - The Next Web - February 1st, 2020
- 2019 saw more cryptocurrency hacks than any other year - ZDNet - February 1st, 2020
- Cryptocurrency Taxes in the UK: What You Need to Know - Bitcoin... - Bitcoin Magazine - February 1st, 2020
- Paris Saint-Germain Teams up With Cryptocurrency Exchange Platform CoinCasso - Bitcoin News - February 1st, 2020
- Banning Cryptocurrency - Economic and Political Weekly - February 1st, 2020
- Cambodia To Launch A National Cryptocurrency In The Coming Months Crypto.IQ | Bitcoin and Investment News from Inside Experts You Can Trust -... - February 1st, 2020
- 49,999,995 XRP Sent to Bitstamp Is This Cryptocurrency Giant Behind the Curtain? - The Daily Hodl - February 1st, 2020
- Stake Algorand and Cosmos on Binance.US | Cryptocurrency News - Crypto Briefing - February 1st, 2020
- XRP Trounces Bitcoin, Ethereum as Conjectured Best Performing Cryptocurrency of 2020 - NewsLogical - February 1st, 2020
- Research: Ether Was the Cryptocurrency Most Correlated to Other Coins in 2019 - Cointelegraph - January 27th, 2020
- Regulating Bitcoin: WEF2020 Announced A Global Consortium For Cryptocurrency Governance - CryptoPotato - January 27th, 2020
- This Top Cryptocurrency Got 51% Attacked. Yet, Its Up 19% And Its a Problem - newsBTC - January 27th, 2020
- It's tax season and the IRS wants to know about your crypto. How to prepare - CNBC - January 27th, 2020
- Cryptocurrency Market Update: Bitcoin, Ripple and Ethereum dive into the rabbit holes - FXStreet - January 27th, 2020
- Cryptocurrency mining in Iran to boost economic conditions - Cryptopolitan - January 27th, 2020
- Creator of Cryptocurrency Price Tracking App Wins India PM Award - Altcoin Buzz - January 27th, 2020
- Alleged BTC-e boss will be extradited to France over cryptocurrency fraud - The Next Web - January 27th, 2020
- Price Analysis: Discovering the Top Cryptocurrency Market Performers This Week - The Cryptocurrency Analytics - January 27th, 2020
- Trend Micro creates honeypot to analyse security threats, gets subjected to ransomware & cryptocurrency mining - Economic Times - January 27th, 2020
- Cryptocurrency Hackers Were More Active in 2019, but Were Less Successful - CryptoGlobe - January 27th, 2020
- Bank of England to consider adopting cryptocurrency - The Guardian - January 22nd, 2020
- Crypto Tidbits: Bitcoin Hits $9,000, Institutional Cryptocurrency Investment Spikes, NBA Team Uses Ethereum - newsBTC - January 22nd, 2020
- How Cybercriminals Are Converting Cryptocurrency to Cash - BankInfoSecurity.com - January 22nd, 2020
- UK offers $130K for software that can trace Bitcoin, Ethereum, and (hopefully) Monero - The Next Web - January 22nd, 2020
- Hackers have got their hands on $11 billion in stolen cryptocurrency since 2011 - SmartCompany.com.au - January 22nd, 2020
- Thailand launches probe into $2.46M cryptocurrency pyramid scam - The Next Web - January 22nd, 2020
- Moonday Mornings: Its 2020 and the OneCoin scam is still alive - The Next Web - January 22nd, 2020
- $140,600,000 in Bitcoin (BTC) Exits Cryptocurrency Exchange As Whale Moves $6,320,422 in XRP - The Daily Hodl - January 22nd, 2020
- Cryptocurrency No longer banned in India? - The Coin Republic - January 22nd, 2020
- Akons AKOIN Cryptocurrency City White Paper to be Live by February 2020 - The Cryptocurrency Analytics - January 22nd, 2020
- BTC/USD: Will 2020 Bring Clear Vision to the Oldest Cryptocurrency? - FXStreet - January 16th, 2020
- Cryptocurrency Market Update: Two-day recovery on the rocks as Bitcoin, Ethereum and Ripple trim gains - FXStreet - January 16th, 2020
- Cryptocurrency Market Update: Bitcoin bulls hit the pause button, altcoins follow the lead - FXStreet - January 16th, 2020
- Cryptocurrency billionaire funds SF-wide web of cameras to help fight crime - KRON4 - January 16th, 2020
- North Korea is Holding a Secretive Cryptocurrency Conference, and Experts Warn it's a Very Bad Idea to Attend - Newsweek - January 16th, 2020