The difference between Cryptocurrencies and Tokens

In the technological environment of cryptoassets, tokens have very definite characteristics, but on numerous occasions this term is confused or even used as a synonym for those known Cryptocurrencies. This imprecision stems from the fact that both concepts describe units of value found in a blockchain.

To better understand these two concepts, we first need to be clear about what a cryptocurrency is and the different characteristics of a Token.

What are Cryptocurrencies

Una Cryptocurrency is a digital asset built to function as a medium of exchange, which are carried out through transactions electronic using encryption techniques with so-called cryptographic technology, which ensures transactional flow. Let's say that the cryptographic technology allows different agents to transmit securely to each other.

When we think of cryptocurrencies, the first thing that comes to mind is probably the Bitcoin, which is actually the father of all cryptocurrencies.

His creation marked a before and after, as he was the first to apply a powerful cryptographic system on a platform that chronologically records and validates all transactions made.

The first blockchain was conceived by its creators as an open source or open source system, which led to the origin of several projects based on this protocol. With some of these projects, new uses were discovered, which essentially involved the emergence of several cryptocurrencies called altcoins.

What are Altcoins

Altcoins are nothing more than coins alternatives to Bitcoin, since the distinction is made since Bitcoin is the first currency of all, these new cryptocurrencies were created as an alternative to the original protocol.

Within the altcoins we found two types, those that come from the original protocol with certain added variations (Dogecoin or Litecoin) and those that come from a proprietary blockchain created from scratch with a native cryptocurrency (Ethereum).

What are Tokens

Despite having been a popularized concept in the digital world, Tokens or tokens in Spanish, they have their origin in the physical world. One of the first examples of tokens in the physical world was found in 19th century landowners, where workers were remunerated with Tokens, which they could exchange for food within the ranch itself, but outside it they had no value. At present an example of a physical token would be casino chips, within this they have a value and is accepted by the casino itself and by the players inside it, but a 500€ chip outside the casino is worthless.

In the book The blockchain business The token is described as “a unit of value that an organization creates to govern its business model and give more power to its users to interact with its products, while facilitating the distribution and sharing of benefits among all its shareholders”.

Tokens are usually part of projects Fintech, in which these tokens can represent an asset or have a specific utility. As is the case with cryptocurrencies, its value is accepted by a community and they exist on a blockchain, but in the case of tokens these are not just a means of payment, since they can represent any fungible and negotiable asset.

Tokens are created on the Cryptocurrency protocol that already exists on a given blockchain. Most tokens originate from a ICO o Initial Coin Offering, a process by which the project raises capital from its investors in order to be able to continue developing the project in the best way, in exchange for such investment investors would obtain a number of tokens that will have a utility or value within the project.

If you want to know more about ICOs, we recommend taking a look at our article, where we explain what it is and its process in detail.

Within the concept of tokens we find two major types of tokens which have clear differences, these two types of tokens are the most used and popular in the market today. Of course we refer to the Utility Tokens and Security Tokens.

Utility Tokens

As its name suggests, a utility token has a specific utility, the perfect example would be the points that an airline gives for flying with its company. These points could later be redeemed for certain benefits or even a flight.

Security tokens

On the other hand Security tokens provide their owner with rights and obligations, such as the right to dividends (such as real estate from Regental) or right to vote, but unlike the previous ones, these cannot be exchanged for products or services of the company that issues them, nor for advantages or upgrades of the current products or services consumed.

If you want to learn more about both types of tokens and their main differences, we invite you to read our article about security tokens and the characteristics that differentiate them from utility tokens.

In short...

Cryptocurrencies and tokens have many similarities, since both represent a unit of value, are accepted by a community and exist on a blockchain. The main difference between the two cryptoassets is that cryptocurrencies work on their own blockchain, while tokens are created on blockchains or existing blockchains, besides the latter cannot be mined. And finally, as we mentioned, tokens can have more uses than a mere means of payment.

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