We all know altcoins and tokens have changed the world significantly. Blockchain continues to transform the industries and the world we live in. We are accustomed to using these terms daily, without thinking about what they actually mean. You can use the cryptos without knowing too much about how the technology behind them actually works. However, we should all be aware of the differences and similarities between the three most frequently used terms. This is crypto coins, altcoins and tokens explained.
A crypto coin is the first phenomenon we heard of when this digital revolution started. A coin is a digital currency possessing value. We can use it as a means of payment. Therefore, we can think of coins as physical currencies, only in a digital world.
Coins function on the blockchain with their own protocols. The advantage of using coins is in their speed when it comes to transfers, as well as in security and anonymity.
Coins are divisible, which means we can divide them into smaller units of significant value. Crypto coins have either limited or constant supply. They are also fungible (we can exchange one unit of a coin for the same value of another coin). Above all, coins are borderless, and people use them worldwide.
Altcoins are basically digital currencies that came after Bitcoin. Bitcoin was the first digital currency based on a decentralized network. One of the main features that was learned of at the time was immutability. Namely, with Bitcoin and its underlying technology – blockchain, came the recording of all details of each transaction. This made the process transparent and immutable (i.e. irreversible).
All coins issued after Bitcoin followed in its steps. We call them altcoins. Ether and Ripple are the most noticeable examples.
The same as coins, altcoins are divisible, fungible and we use them worldwide. They can also be in limited supply or the number of unites can constantly be issued.
Tokens are a bit more abstract to comprehend. Altcoins and tokens share some similarities. Tokens are fungible, digital assets and we can use them as means of payment, but only in their own ecosystem.
Moreover, tokens are native to a certain project. Therefore, they have sort of a “right” to be used only within the boundaries of that project. Furthermore, a token enables its holder to participate in a network.
Tokens do not function on their own blockchain. They are “introduced” to another platform.
When we use tokens inside the project, we can refer to it as utility tokens. Otherwise, tokens can represent a share of a company. In cases like these, we can talk about security tokens.
To sum up, to all of the above mentioned we refer as cryptocurrencies. However, remember that a true cryptocurrency possesses the following features:
it is a unit of account, a store of value and a medium of exchange. We know that Bitcoin has all of these, as well as most of the coins that “walked in its shoes”. However, tokens are a bit different and are limited to a certain ecosystem. Always remember that you can buy a token with a coin, but not the vice versa.
Have you had any experience with tokens so far?