Are Cryptocurrencies and Tokens the same?

There is a world of confusion when it comes to defining what a coin is and what a token is, but in reality when you get the basics then the definition is simple. 

Let’s take a look at what we learnt before, that the blockchain is in its essence a record of blocks that define transactions. These transactions are mostly of a monetary type and therefore they represent the transactions of a Coin. A CryptoCoin can be classified as tender… and therefore as we said before it acts as a currency. 

Each Coin runs its own blockchain and its own technology, and this is a very important factor. The technology behind the coins is very often custom to the coin itself and is built in a way to serve the purpose of the coin and why it was created. 

When we look at bitcoin, this was created as a pure currency and therefore the bitcoin blockchain supports a robust financial transaction model. In contrast, Ethereum was built as a contract based currency, and therefore its blockchain supports the use of smart contracts, which are predefined conditions required for the transaction of Ether to happen.

This is were Tokens come in. When creating a solution to a problem using blockchain technology, there is no need to reinvent the wheel, and most of the time, the solution can be built off of an already existing blockchain. This is beneficial for many reasons like having an existing user base mining the blocks, a tried and tested wallet and transaction model, liquidity in the market, trust in the underlying technology and constant updates. These, along with many other benefits, give rise to Tokens.

A Token is not a currency, but acts as a tradable asset off of the underlying blockchain coin. So for example in the case of PWR, they provide electrical tokens that represents mWH of power for a home. The amount of tokens required is defined by the system, but to purchase the tokens you would need to use Ethereum, which is the underlying blockchain. Also for every PWR Token transaction, there is a fee in ETH that would need to be paid, the mining fee that we had mentioned before.

In essence therefore we can say that crypto currencies are made up of coins that have a monetary value and are the transactional currency for the blockchain technology, whilst Tokens represent a product or service that runs on a Coin’s blockchain and uses its as tokens to do internal transactions, but must pay fees in the Coin of the underlying blockchain to attach these transactions onto the blockchain. 

---

Continue Reading about blockchain:

1. What is Blockchain?
2. Why is Blockchain Important?
3. What is a Crypto Currency? 
4. What is an ICO?
5. Are Cryptocurrencies and Tokens the same?
6. Can Blockchain be used without a Coin or Token? 
7. Blockchain in Use (Real Estate)
8. Will Blockchain replace banks? (Part 1 – Banking and Finance)
9. Will Blockchain replace banks? (Part 2 – Blockchain Adoption)
10. What is Distributed Ledger Technology? (Coming Soon)
11. What is the future of Blockchain? (Coming Soon)

---

If you want to learn more about Blockchain Technology, Cryptocurrencies, ICOs, Distributed Ledgers, Smart Contracts or other fields related to the technologies, contact me using the contact page, or leave a comment below.

---

Thanks for Reading