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What is the difference between a token and a cryptocurrency? Find out here

As cryptocurrencies become more and more important, it is useful to know how they work, and even more if we want to participate in this market

What is the difference between a token and a cryptocurrency? Find out here

Cryptocurrencies are a phenomenon that is increasingly present in the global economy. Its alternative currency position has made many large investors, as well as different companies and even individuals, interested in what these new alternatives have to offer.

Leer en español: ¿Cuál es la diferencia entre un token y una criptomoneda? Aquí te explicamos

Since the launch of Bitcoin, the first cryptocurrency, in 2009, the global panorama has been changing very quickly, since it has not been a decade since they entered the market for the first time and cryptocurrencies have completely revolutionized the way what transactions are understood in the 21st century.

Whether cryptocurrencies are accepted as an integral part of the new economy, or rejected outright, it is a phenomenon that came to stay. The discussion is so varied, and has so many different actors immersed in its speech, that the examples that can be found are, at least, attractive.

For example, more traditional banks have been reluctant to implement it. The Spanish bank BBVA has advanced as an international standard-bearer of the implementation of new technology in its operations, both at the level of fintechs and startups, and at the level of cryptocurrencies, especially in their pedagogy.

On the other hand, there are examples like that of Janet Yellen, the former president of the Federal Reserve of the United States, who recently stated that the use of bitcoin (referring in general to cryptocurrencies) is anything but useful, because she attacked directly the lack of stability and real reference in the market of them.

Regardless of the position that one may have about cryptocurrencies, it is essential to know their most basic concepts, because sometimes the lack of knowledge about these issues is what produces fear and rejection. The first thing that needs to be understood is the difference between a coin and a token, the two forms that a cryptocurrency can assume.

Coins

The cryptocurrency, as the name implies, is intended to be taken into account as an exchange value in the world market, in such a way that, in an ideal situation, it is the same to trade in dollars than in bitcoins. . However, its fundamental difference is based on the system under which they were created: the blockchain.

Also read: Beyond Bitcoin: These are the 6 strangest cryptocurrencies

This system of technological encryption has opened a door towards transparency and the democratization of information, which ends up being, in this case, in cryptocurrencies. Those who see a danger in this model argue, precisely, that the democratization of processes means that the currency loses relevance and cannot be controlled in a state way.

Same idea, two different approaches. The coins, then, are what we now know as exchange values ​​with recognizable names: Bitcoin, Ethereum, Litecoin.

Tokens

The token concept is the one that may be more interesting for the common user of cryptocurrencies and the blockchain, since this concept is what allows us to move from the abstract storage of information to its materialization. A token, in a simple way, is a representation of an asset in the real world that works within a certain context. For example, chips for a player represent real money, but outside of this context they are worthless.

These tokens are designed within the same information chains that use coins, but serve specific purposes. The "tokenization" of assets, as some people have called it, seeks to assign a specific means of exchange so that it can then be represented in currency, either in cryptocurrencies or in traditional currencies. In this way, the token works within the context of cryptocurrencies as a representation of a fixed value.

If we wanted to offer a quick analogy of the function of each of these concepts, we could say that, in the context of cryptocurrencies, a currency would be the dollar as a concept and a token would be a bill of this currency. Thus, the dollar represents the entire exchange of assets in a global economy and the ticket, the token, the way to obtain these assets.

 

LatinAmerican Post | Jorge Ovalle
Translated from “¿Cuál es la diferencia entre un token y una criptomoneda? Aquí te explicamos”

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