Crypto Currency vs. token? Bitcoin? Cryptocurrency? ETH? Lots of weird terms for anyone learning about digital currencies. Let's easily explain the difference between them
While we've been talking about games to win cryptocurrencies, we've been talking a lot about tokens, cryptocurrencies, bitcoins and ETH and other things. But, within a game like Axie Infinity, we can say that each little monster is a token, nor like its SLP. In Splinterlands your cards are tokens. In Illuvium your monsters and equipment will be tokens. But what exactly are tokens? And what are bitcoins and ETH coins and other names we've talked about so far?
Understanding the difference between coins and tokens is a herculean task in the context of cryptocurrencies. Although these two terms are often used interchangeably, they refer to two different concepts in the cryptographic ecosystem. While it's not a crime to use these terms interchangeably per se, you need to have a clear understanding of coins and tokens to learn more about the future of cryptography and the blockchain.
If you are already experienced and are just looking for new ways to buy and earn cryptocurrencies, maybe this article will help you understand a little more about the subject and clarify some doubts. If not, if you are new to the world of cryptography and want to learn, then this is the article for you to understand at once what a token is and what a cryptocurrency is. Plus, you'll learn even more about the subject by reading these special books we've selected on Amazon for you.
- Quick FAQ
- What is Blockchain?
- What is a cryptocurrency?
- How to mine Bitcoins?
- What is a Token?
- Crypto Currency vs. Token – The main differences
- Blockchain Decentralization
What is a cryptographic token?
A cryptographic token is a virtual currency token or a denomination of a cryptocurrency. It represents a tradable or utilitarian asset that resides in its own blockchain and allows its holder to use it for investment or economic purposes.
What is the purpose of tokens?
Cryptographic tokens can be used to represent an investor's participation in the company or for economic purposes such as local currency. This means that token holders can use them to make purchases or trade tokens like other securities for profit.
Is Bitcoin a token or a currency?
Bitcoin is a cryptocurrency, which has tokens or virtual currencies that can be used to trade or make purchases.
What is the difference between a crypto currency and a token?
Cryptographic coins allow individuals to make payments using their digital currency. People can use tokens, however, for many other reasons. They can use them for trading, to retain and store value and, of course, to use as a form of currency.
What are the different types of tokens in Blockchain?
Tokens that reside in blockchains include reward tokens, currency tokens, utility tokens, security tokens, and asset tokens.
What is Blockchain?
Blockchain looks complicated, and it definitely can be, but its core concept is actually pretty simple. A blockchain is a type of database. To be able to understand the blockchain, it first helps to understand what a database really is.
A database is a collection of information electronically stored in a computer system. Information, or data, in databases is typically structured in a table format to allow for easier searching and filtering of specific information. What's the difference between someone using a spreadsheet to store information instead of a database?
Spreadsheets are designed for one person, or a small group of people, to store and access limited amounts of information. In contrast, a database is designed to store significantly larger amounts of information that can be accessed, filtered, and manipulated quickly and easily by any number of users at the same time.
Large databases accomplish this by storing data on servers made up of powerful computers. These servers can sometimes be built using hundreds or thousands of computers to have the computing power and storage capacity needed for many users to access the database simultaneously. Although a spreadsheet or database can be accessed by any number of people, it is usually owned by a company and is managed by a designated individual who has full control over how it works and the data within it.
Blockchain Storage Structure
An important difference between a typical database and a blockchain is the way the data is structured. In a blockchain, the collection of information is done in groups, also known as blocks, which contain sets of information. Blocks have certain storage capacities and, when filled, are chained together in the pre-populated block, forming a data chain known as a “blockchain”. All new information that follows that newly added block is compiled into a newly formed block that will also be added to the chain after it is filled.
A database structures its data into tables, while a blockchain, as its name implies, structures its data into pieces (blocks) that are chained together. This makes all blockchains to be databases, but not all databases to be blockchains. This system also creates an irreversible data timeline when implemented in a decentralized manner. When a block is filled, it is “set in stone” and becomes part of this timeline. Each block in the chain is given an exact timestamp when it is added to the chain which prevents its modification and guarantees the validity of transactions made.
What is a cryptocurrency?
Cryptocurrencies, or coins or coins, refer to cryptocurrencies built into your independent blockchain network. The most famous example is Bitcoin (BTC), which is also the world's largest cryptocurrency by market capitalization.
Bitcoin is powered by its native blockchain network. Likewise, Litecoin (LTC) and Ethereum (ETH) work in their respective blockchains. These block chains can differ in size, rules, miners, performance, etc. Some of the popular currencies are Bitcoin (BTC), Ripple (XRP), Ethereum (ETH), Dogecoin (DOGE) and Litecoin (LTC).
How are digital coins used?
Digital coins are designed to serve the same purpose as physical coins: transfer of value. In the cryptographic ecosystem, digital currencies allow for the transfer of payments. Digital coins also store value directly linked to their demand and supply. Therefore, the value of digital coins is often volatile.
However, there are some exceptions to this. For example, ownership of Dash (DASH) will allow the client to vote on decisions proposed to the DASH network. In the case of Bitcoin, however, the only way to get more Bitcoins is to buy or mine them.
How to mine Bitcoins?
Mining Bitcoin is a very technical and demanding process.er great processing power of your computer. Basically, the processing power of the computer will be directly proportional to the rate or speed of mining and therefore to profit. If a person's computer is slow, it might not produce enough Bitcoins.
To extract Bitcoins, you can use a normal computer that has CPU, motherboard, RAM and storage. The only difference and the most important requirement here is the graphics processing unit (GPU) or the graphics card. A high-performance GPU is an essential aspect if one wants to mine Bitcoin.
What about computing resources and electricity?
Bitcoin mining is done using specialized hardware called ASICs, which stands for Application Specific Integrated Circuits. This is to solve computer problems and upgrade processing power.
The requirement for GPU and ASICs can collectively be heavy on a person's pocket. It is also necessary to have a constant active internet connection for this to work. The other important aspect is the need for electricity for mining machines. The biggest Bitcoin miners are said to have operated in China, where electricity was cheaper compared to developed nations.
For a home computer, trying to mine bitcoins would be a loss, because how much you could mine cryptocurrency would not cover how much you would spend on electricity (currently on the red flag). That's why there are cases even of electricity theft, as an attempt to soften the value for
What is a Token?
Tokens refer to cryptocurrencies that do not have their own blockchain network. Instead, these cryptocurrencies are built on another blockchain. Users can create digital tokens using one of the many platforms in the DeFi (Decentralized Finance) ecosystem.
Ethereum is one of the most popular choices, thanks to its support for smart contracts. Most of the digital tokens found today are ERC-20 tokens, as the Ethereum platform easily allows you to create tokens on top of the Ethereum blockchain.
There are currently thousands of tokens on the market. Tether (USDT), USD Coin (USDC), DAI, UMA and Basic Attention Token (BAT) are some of the commonly used digital tokens out there. These tokens can have powers other than transfer of value.
How are digital tokens used?
Like digital coins, tokens also allow the transfer of value. However, in most cases, a digital token has some additional powers than being a means of payment. Anyone can create digital tokens to fulfill specific functionality.
For example, a privacy-focused Brave browser uses the Basic Attention Token (BAT) to reward its users for surfing the web. Customers are paid in BAT when they view ads from publishers who partner with the Brave browser.
There are different types of digital tokens for various purposes:
Security tokens act as proof of investment in real-world assets such as stocks and fixed income. They are issued during the Security Token Offer (STO). Utility tokens are designed to provide access to a particular service or product. For example, the FIL token can access the Filecoin platform.
Asset tokens are digital tokens tied to real-world assets such as real estate, gold, etc. In this case, a token represents real-world investment. Stablecoins are fixed value digital tokens. These are often indexed to fiat currencies such as USD or EUR. Non-fungible tokens represent unique items, which can be real or virtual. Items used in a game are an example of these tokens. Payment tokens are almost similar to digital coins in that they allow a transfer of payment in exchange for goods and services.
Some services also create payment tokens to get rid of middlemen. In most cases, the customer would be rewarded for using these tokens instead of a traditional payment method. Compared to building a coin from scratch, creating a token via the Ethereum platform would take much less time.
Crypto Currency vs. Token – The main differences
In summary, some of the main differences between a digital token and a digital currency are as follows:
- Digital coins are based on your native blockchain network, tokens are built on the existing blockchain.
- Digital coins can be used to process payments, but tokens are suitable for many needs.
- Digital coins are more difficult to create than tokens that can be built on an existing blockchain such as Ethereum.
- Digital coins are mainly distributed through mining, while tokens have become popular through ICOs.
Tackling the cryptocurrency markets is a challenging task, but understanding the basic distinction between the various types of cryptocurrencies can help you manage risk and make better decisions in a volatile ecosystem.
To understand the blockchain, it's instructive to view it in the context of how it was implemented by Bitcoin. Like a database, Bitcoin needs a collection of computers to store its blockchain. For Bitcoin, this blockchain is just a specific type of database that stores every Bitcoin transaction ever made. In the case of Bitcoin, and unlike most databases, these computers are not all under one roof, and each computer or group of computers is operated by a single individual or group of individuals.
Imagine that a company has a server consisting of 10.000 computers with a database containing all of its customer's account information. This company has a warehouse containing all of these computers under one roof and has full control of each one and all the information contained therein.
What are Nodes?
Similarly, Bitcoin consists of thousands of computers, but each computer or group of computers that maintain your blockchain is in a different geographic location and all are operated by separate individuals or groups of people. These computers that make up the Bitcoin network are called Nodes.
In this model, the Bitcoin blockchain is used in a decentralized way. However, there are centralized and private blockchains, in which the computers that make up your network are owned and operated by a single entity.
In a blockchain, each Node has a complete record of the data that has been stored in the blockchain since its inception. For Bitcoin, the data is the entire history of all Bitcoin transactions. If a Node has an error in its data, it can use the thousands of other Nodes as a reference point to correct itself. In this way, no node in the network can change the information contained in it. Therefore, the transaction history in each block that makes up the Bitcoin blockchain is irreversible.
If a user tampers with the Bitcoin transaction log, all other Nodes will cross-reference each other and easily identify the Node with the incorrect information. This system helps to establish an exact and transparent order of events. For Bitcoin this information is a list of transactions, but it is also possible for a blockchain to contain a variety of information such as legal contracts, state IDs or a company's product inventory.
In order to change the way that system works, or the information stored in it, most of the computing power of the decentralized network would need to agree to these changes. This ensures that any changes are in the best interest of the majority.
So, this sums up a bit of the differences between Tokens and Cryptocurrencies. If you want to know more about Bitcoin in particular, we have an excellent article on our website that you can read here. If you have any questions, you can leave them in the comments. Also take the time to read more about criptomoedas on our website.