Coins, Altcoins and tokens, what is what?

By MichDon | MichDon | 24 Apr 2020

Let's start by understanding the definition of cryptocurrency. Cryptocurrencies are digital or virtual currencies that are encrypted (secured) using cryptography. Cryptography refers to the use of encryption techniques to secure and verify the transfer of transactions. Bitcoin represents the first decentralized cryptocurrency, which is powered by a ledger that chronologically records and validates all transactions, called the Blockchain.

Altcoins

Alternative cryptocurrency coins are also called altcoins or simply “coins”. They are often used interchangeably but are not entirely correct. Altcoins simply refers to coins that are an alternative to Bitcoin. The majority of the altcoins are a variant (fork) of Bitcoin. Built using Bitcoin's original open protocol with changes to the underlying codes, creating an entirely new coint with a different set of functions.

There are altcoins that are not derived from Bitcoin's open source protocol. Instead, they created their own Blockchain and protocol that supports their own currencies. Examples of this coin are Ethereum, Ripple, EOS.

Tokens

Tokens are created on existing blockchains. Thanks to the setup and facilitation of smart contracts, Ethereum is the most widely used blockchain token platform. Tokens built on the Ethereum platform are called ERC-20 tokens. However, there are other platforms such as NEO, Waves, Lisk, EOS, TRON and Stratis. While, as mentioned above, tokens on the Ethereum platform are known as ERC-20 tokens, NEO uses tokens known as NEP-5 tokens.

Because the developers of a dApp do not have to create their own blockchain, it saves them time and resources. They can use the functions of cryptocurrency with their application while taking advantage of the security of the native blockchain.

Time isn't the only thing that saves them - if they were to create their own blockchain and coin instead of a dApp and token, they would also have to find miners to verify their transactions. It makes much more sense to connect many computers to a blockchain that can run different applications instead of thousands of weak, mostly centralized blockchains.

Different tokens

Security tokens - most tokens issued by ICO are security tokens. The person who buys them invests their money in the ICO with the expectation of profit. Under Swiss law, these are treated in the same way as traditional securities.

Equity Tokens - if a token represents stock or shares in the company that issues it, it is an equity token. However, few companies have attempted such an ICO, as there are not many legal guidelines for what is legal and what is not.

Utility Tokens - also known as application. They are used to provide people with access to a product or service.

Payment Tokens - have no other purpose than to pay for goods and services.

Tokens are created and distributed to the public through an Initial Coin Offering (ICO), a crowdfunding resource. It is similar to an Initial Public Offering (IPO) for shares. Many love ICOs because they are a great way to identify interesting projects.

However, ICOs are also used for scam practices as explained in one of my previous articles: Be warned: The pump and dump explained!. Investments are made in a project, after which the team disappears from the face of the earth.

Conclusion

The main difference between altcoins and tokens is in their structure; altcoins are separate currencies with their own separate blockchain. Tokens work on a blockchain that enables the creation of decentralized applications.

My articles:

Bitcoin (BTC) Crypto Blockchain Altcoins ICO

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MichDon

Crypto entousiast, father, taekwondo

MichDon

Crypto-enthousiast dad with an aim to try to inform readers of new and interesting projects, upgrades and updates to projects and of course any news of interest on the Crypto spectrum.