Today, we are living in the digital finance boom. There isn’t a day that we don’t hear about cryptocurrencies, tokens, NFTs and more. But, many times these terms cause some confusion.
And some terms that cause people to get confused and think that they refer to the same thing are the token and the cryptocurrency. However, the truth is that both words have different meanings, in this article we will explain the concept of each one.
What is a token?
It is an element that represents an alphanumeric string that can be a public or private key. In the area of computer programming, a token is considered a component in a programming language. It can be, for example, an operator, a punctuation mark, an identifier, among others.
Tokens count elements in a similar way to coins, so they give the right to own a certain amount of goods or services that have been created for that purpose. In this way, a Token can take different forms. It can represent a currency, a property, a stock, and ultimately anything in the real world.
Something that distinguishes tokens is that they work with non-proprietary Blockchain platforms. Ethereum is the most common platform for creating tokens; this thanks mainly to its smart contracts function.
Finally, although the tokens can be used as a means of payment, they are generally used within decentralized applications. This type of token is called a “Utility Token”.
What is a cryptocurrency?
It is basically a currency that is encrypted through the use of cryptography. What is cryptography? It is the field of cryptology that deals with encryption techniques
Starting from this base, cryptocurrencies are used as money, since they comply with some of the characteristics and functions of conventional money. Cryptocurrencies, like money, are fungible, divisible, portable, and in limited supply.
In this way, a cryptocurrency is a token that aims to serve as a decentralized means of payment.
The transactions carried out with cryptocurrencies are recorded in an accounting book, which is distributed by the network of nodes of the cryptocurrency in question through Blockchain technology.
One aspect that all cryptocurrencies share is that they all exist on their own separate ledgers. And this makes it possible for them to integrate three other fundamental characteristics: High security, decentralization and anonymity.
Difference between Token and Cryptocurrency
- Cryptocurrencies use their own blockchain, while tokens work through the blockchain of other companies.
- A token has different functionalities, while a cryptocurrency is only a means of payment.
- Cryptocurrencies are fungible, divisible, portable, and in limited supply, but not all tokens necessarily have to be.