Concept of cryptocurrency

A cryptocurrency is a digital or virtual currency that is created and issued by private market participants, rather than central authorities or incumbent financial institutions (e.g., banks). A cryptocurrency, crypto-currency, or crypto is designed to function as a medium of exchange through a computer network that is not run by any central authority, such as a government or a bank. The network uses cryptography for security. A virtual currency refers to an electronic representation of value that does not take a physical form. It is a type of digital currency that principally provides a means of payment (among other functions) for goods and services over the internet, or broadly on an online platform, while utilizing encryption technology. The currency is used by an unspecified large number of individual and businesses/ entities and can also be converted (in either direction) to legal tender, such as dollars and euros at dedicated exchanges.

Cryptocurrency coins

A cryptocurrency coin (crypto coin) is a native crypto (native asset) to their own blockchain. It is a type of cryptocurrency that represents a digital version of money (currency) consisting of a series of data blocks chained together cryptographically. It is the native asset created on its own blockchain network. Such crypto coins are meant to mimic traditional currencies (coins) as full-fledged money (medium of exchange, store of value, and measure of value). Crypto coins operate on a blockchain where all the records for transactions involving a specific type of coin are maintained and can be easily and securely tracked. Payment by a crypto coin entails recording of the transaction and its receipt on the blockchain. Examples of crypto coins include Bitcoin and Ethereum. The Bitcoin blockchain coin is BTC. The Ethereum blockchain has ETH. And the Litecoin blockchain uses LTC. These crypto coins are primarily created to store value and function as a medium of exchange, similar to traditional currencies. Generally, crypto coins are either created using a proof of work (PoW) consensus mechanism or earned via a proof of stake (PoS) mechanism.

Cryptocurrency tokens

A crypto token (cryptocurrency token) is a specific type of digital token. It is a representation of an asset or interest or right, by means of tokenization, on an existing cryptocurrency‘s blockchain or a similar technology. A crypto token is a type of tradable digital asset (digital token) that represents the specific use, services or assets issued on a blockchain.In other words, it represents ownership or value in a decentralized system. Tokens are created on blockchain platforms and are used for a variety of purposes, such as providing access to specific goods or services, representing shares in a venture, or extended as an incentive for users to take part in a particular ecosystem. In general, a crypto token encompasses all the concepts of “cryptocurrency,” “digital asset,” or “cryptoasset.” Conceptually, crypto tokens can be perceived as digital keys that function on digital ledgers. These tokens have multiple uses beyond the medium of exchange/ store of value function of money, posting as vehicles for access to a service and ownership of digital artwork, among others. Such tokens facilitate many transactions including purchasing, selling, or proving ownership of almost all types of digital assets in a controlled and secure manner.

Differences between cryptocurrency coins and cryptocurrency tokens

While many people use the terms “crypto coin”, “crypto token”, and “cryptocurrency” interchangeably, there are certain differences amongst  them. Though coins and tokens use distributed ledger technology (DLT), there are specific major differences between a coin and a token. Crypto coins are a form of digital currency that are often native to a blockchain, designed to function as a store of value and a medium of exchange. For example, Ether (ETH) is categorized as a coin because it represents the native asset on the Ethereum blockchain. However, Dai (DAI), Uniswap (UNI), and Aave (AAVE), for example, are classified as tokens because they are projects built on top of the Ethereum blockchain.

On the other hand, crypto tokens are digital assets that are created on top of an existing blockchain (using smart contracts) and can carry out a wide range of functions, including representing a physical asset to granting access to platform-specific services and privileges. Tokens provide for certain other functions, including utility (utility tokens), security (security tokens), and governance (governance tokens). Examples are tokens such as Cronos (CRO); Very, Very Simple Finance (VVS); and Uniswap (UNI).