If you’ve been learning about cryptocurrency and blockchain lately, you may have come across people talking about “tokens”. What exactly are these crypto tokens and how are they different from cryptocurrencies like Bitcoin? Let’s find out in this article.
Before we get into the difference between a token and a coin, you need a quick understanding of what a cryptocurrency is. They are digital currencies that people can exchange for goods and services, similar to conventional currencies like dollars and Vietnamese Dong.
Unlike traditional money, cryptocurrencies are not regulated by government institutions. All transactions involving specific cryptocurrencies are logged into a centralized blockchain, a place that facilitates the transfer of virtual currencies between secure addresses. Coins and tokens are both digital assets used for transactions on the blockchain.
Difference between Coin and Token
The words “coin” and “token” are often used interchangeably, but they are separate asset classes. The most significant difference between coins and tokens is where they operate. Coins are units derived from the blockchain on which they are built. For example, Ethereum is derived from the Ethereum blockchain, while Bitcoin is made for the Bitcoin blockchain. These coins use “keys” to denote ownership of some amount of cryptocurrency.
Coins are often used in everyday transactions, like shopping online or sending someone cash. If someone sends you bitcoin, the blockchain will process to increase the balance in your wallet and decrease the balance of the other person, completing the transaction.
Tokens, on the other hand, are not native to the blockchain they are operating on. For example, many of today’s most widely used crypto tokens are run and exchanged on the Ethereum blockchain. Examples include Tether, a stable coin with a default price of $1, a protocol used to trade different cryptocurrencies.
How do crypto tokens work?
Cryptocurrencies are comparable to the money you have in your bank account. Even though you own the money, it is not tied to any particular dollar or coin. That is when you withdraw money from your account, you will receive the paper money. Tokens, on the other hand, are “owned” and each token is a separate property that you own. For example, tokens like game tickets, if you want to play, you have to give up the ticket.
If you send someone a token, the token will “leave” your account and move to someone else’s account. This is why tokens can also represent ownership or facilitate the exchange of assets, such as with “non-fungible” (NFT) tokens. With NFT, each token is like a “deed” representing your copyright to a specific work of art or digital artifact.
Unlike coins, which use a system of public and private keys to facilitate transactions, exchanges are conducted with tokens using a system known as “smart contracts”. These blockchain applications can be programmed to perform transactions or transfers when certain conditions are met. Each blockchain that serves as the foundation for the token has a technical standard for defining smart contracts. For example, Ethereum uses one called ERC-20.
Where can you buy them?
A popular way to receive crypto tokens is through cryptocurrency exchanges. These are large-scale platforms that facilitate trading across various currencies and tokens. These exchanges will allow you to trade between different cryptocurrencies and conventional currencies, manage different wallets, check the value of each cryptocurrency and facilitate the transaction. sending and receiving money. One of the exchanges I recommend you to use is Atlas, because it is a Vietnamese floor, and when you sign up, you get free money too.
Some tokens are issued through other applications. For example, some new mobile apps give away crypto tokens to people who actively use their services.
Sometimes the token represents something else you paid for. An example of this is “security token”. These are assets that represent your ownership of a part of the company. Security tokens essentially replace stocks, an official indicator that shows what percentage of a company someone owns.
What is Non-Fungible Token?
Some of the most popular tokens are the “mnon-fungible token” or NFT. They are “non-replaceable” because they are not interchangeable. Each token represents ownership over a specific asset, such as a work of art, a digital asset, or the right to a specific item.
During its peak, many exotic things were sold as NFTs. For example, in March 2021, Twitter founder Jack Dorsey sold his first tweet as an NFT in a digital auction. Others have sold JPEG image files, game items, and paintings.