Cryptocurrencies and tokens are both digital assets, and both of them have their own values. You can buy both tokens and cryptocurrencies as an investment, and you can sell it later, trade it for other tokens and cryptocurrencies, or exchange it for the traditional currency.
However, many people didn’t realize that tokens and cryptocurrencies differ from each other. They are not the same, and when we look further, we should differentiate between them to avoid confusion.
To know further about the difference between tokens and cryptocurrencies, this guide will give you the information about these two types of digital assets and other relevant information. Let’s get started.
- Before That, You Need to Know about the Blockchain
- What are Cryptocurrencies?
- What are Tokens?
- Things that Differentiate between Tokens and Cryptocurrencies
Before That, You Need to Know about the Blockchain
The blockchain system is a technological foundation for cryptocurrencies and tokens, which makes the use of crypto assets possible, ensuring that these virtual assets are always accessible for users. It comprises various decentralized networks that makeup one big foundation for a certain cryptocurrency.
The blockchain network will exchange data between various computers connected to the network, while keeping them verifiable and accurate, with no possibility for any computer to alter the data in the entire system. The Blockchain system uses peer-to-peer technology to operate.
Here are some important things you need to know about blockchain:
- Blockchain is the home where cryptocurrencies and tokens are operating.
- It’s the place where trading, transaction, exchanging, and other activities of crypto assets happen.
- Blockchain works thanks to the network of many computers connecting to the blockchain system.
- These computers are the nodes that will keep the entire blockchain data accurate and verifiable.
- Different cryptocurrencies and tokens might have different blockchain networks.
Also Read: 3 Best Bitcoin Hardware Wallets
What are Cryptocurrencies?
Cryptocurrencies are the native digital assets for certain blockchain networks. There are many blockchain networks and other similar technologies that give birth to the release of cryptocurrencies.
Every big cryptocurrency has its own blockchain network, such as Bitcoin, Ethereum, and so on. They operate on their own blockchain protocol in their own network of users.
Here are some important things you need to know about cryptocurrency:
- A blockchain network has its own native cryptocurrency as the primary digital asset it can offer to users.
- Cryptocurrency is the primary property of a certain blockchain network, which the users can get by various means, such as trading and mining.
- Cryptocurrency often has a bigger user base than tokens.
- It is a decentralized virtual currency, meaning that there are no central banks or authorities to manage its transactions.
- It is a form of virtual currency that you can trade and exchange, with its own value depending on its movements on the network or market.
What are Tokens?
You can consider tokens to be the smaller version of cryptocurrencies. Tokens don’t have their own blockchain network, so they use the existing blockchain networks to run. Tokens can be easily created by anyone using any blockchain network and can start trading immediately in a short period of time in various exchanges and it also requires less developer effort.
Tokens have similarities with the primary cryptocurrencies on the blockchain networks, but they also have some fundamental things that differentiate them. So, in one blockchain network, there might exist one primary cryptocurrency and various types of crypto tokens.
Here’s some important information you need to know about tokens:
- Various tokens might exist on the same blockchain network as the primary cryptocurrency.
- There are token standards used to create tokens on top of a specific cryptocurrency, such as Ethereum.
- Tokens are useful for many things, such as for using certain services in a blockchain, playing games, and more.
- Tokens often have smaller values than the main cryptocurrencies, but you can still trade and exchange them.
- You can also use tokens as a representation for physical assets, depending on the platform.
Things that Differentiate between Tokens and Cryptocurrencies
Cryptocurrency and token are the same digital assets that use the same blockchain network, but they have fundamental differences that separate them. Tokens cannot exist without using the existing blockchain, whereas cryptocurrencies are independent digital assets that can operate with their own platform.
Tokens are the smaller forms of cryptocurrencies that cannot exist without the primary blockchain networks used by the cryptocurrencies.
Cryptocurrencies might also become the virtual assets that many people use as an investment. However, tokens also have other uses aside from becoming a pure investment for their users.
There are various applications built for certain tokens, allowing the users to use tokens for various purposes, such as for playing games or as the symbol of real-world assets. The values of tokens can also go up and down just like the values of cryptocurrencies.
- Is a token a cryptocurrency? No, a token is not a cryptocurrency. You can consider a token to be a smaller form of cryptocurrency. However, a token is not the same as a cryptocurrency, although it exists in the same blockchain network as a cryptocurrency.
- Is Bitcoin a coin or a token? Bitcoin is a coin, not a token. It uses its own blockchain network, so you can consider Bitcoin to be a cryptocurrency. There are some tokens that use the same blockchain network as Bitcoin, but they have characteristics that differ from Bitcoin.
- Are tokens and coins the same thing? Tokens and coins are not the same things. Coins are those you often call cryptocurrencies. Tokens are those you often call crypto tokens. However, they are the same digital assets that have their own values and use.
- Which is better, coin or token? Coin often has a bigger value than token, so you can say that coin or cryptocurrency is better than token in value. However, the token also has some other uses that coin doesn’t have. So, the token can also be better than a coin, depending on the purpose for you to own it.
You’ve learned the difference between tokens and cryptocurrencies. Many people, such as beginners, might get confused about how to differentiate between the two.
So, they often interchange the use of the words token and cryptocurrency. However, they are different in various ways, although both of them use the same blockchain networks.
You need to differentiate between tokens and cryptocurrencies if you are serious about investing in digital assets. We hope this guide helped you learn the differences between tokens and cryptocurrencies.