Add3, Content
August 16, 2023
8 min reading
There are a lot of terms in the crypto world that may need to be clarified. For example, are cryptocurrencies the same as crypto coins and crypto tokens? If not, how are they different? In this guide, we’ll explain what to know about the differences in various digital assets.
Cryptocurrencies can also be called crypto coins. They’re coins like Bitcoin (BTC) and Ether (ETH). They function as a medium of exchange or a store of value on blockchain networks. However, unlike traditional fiat currencies, cryptocurrencies are entirely virtual and exist only in digital form. This digital nature allows peer-to-peer digital transactions and accessibility worldwide.
One defining feature of crypto coins like Bitcoin is that they are native to specific blockchain networks. For example, Bitcoin is native to the Bitcoin blockchain, and Ethereum has a native cryptocurrency called Ether. These cryptocurrencies are the primary units of value in their blockchain ecosystems.
Two of the most critical traits of crypto coins are decentralization and trustlessness. Any centralized issuing authority like a bank or government does not control cryptocurrencies. Instead, cryptographic algorithms and distributed consensus mechanisms verify, track, and secure every transaction. This creates a kind of transparency that is impossible with traditional financial assets.
Cryptocurrencies rely on blockchain technology or Distributed Ledger Technology (DLT) to operate and stay secure. A blockchain is a decentralized and immutable ledger that records all cryptocurrency transactions. Because a network of individual nodes maintains the database, it’s nearly impossible for any party to modify the ledger.
Bitcoin was the first crypto coin to use advanced encryption techniques to secure its network. It solved an issue called the “double-spend” problem that had plagued digital currencies before it. These encryption algorithms make cryptocurrencies highly resistant to hacking or counterfeiting attempts.
Unlike cryptocurrencies, which are native assets on specific blockchains, you create crypto tokens on top of existing blockchain networks. Then, token creators build these tokens using the underlying infrastructure and protocols of the layer-1 blockchain.
The most popular blockchain for creating crypto tokens is Ethereum. This is because Ethereum is an innovative contract blockchain that allows more complex interactions for tokens. A smart contract is a self-executing piece of code that can be used to write the instructions for a new token that lives on the blockchain.
There are thousands of crypto tokens on the Ethereum blockchain and other chains like BNB Chain and Tron.
Some of the top Ethereum tokens by market cap are:
One key characteristic of crypto tokens is their versatility. You can use them for a wide range of tasks and applications. For example, tokens are useful in gaming, enabling in-game purchases, rewards, and unique digital assets.
They can also facilitate decentralized finance (DeFi) through lending, borrowing, and yield farming. Tokens can also give users access to platform-specific services or represent ownership of real-world assets.
Crypto tokens are also helpful for blockchain governance. This is how decisions and upgrades are voted on for any given blockchain. Token holders can vote on decisions based on specific token holdings. This provides the blockchain with users some influence on the project’s future.
Tokenization is what happens when a token is created. This is a critical part of crypto tokens. It’s even possible to tokenize real-world assets, utilities, or services. Tokenizing physical assets like real estate makes them easier to access and trade than traditional, analog ways.
It’s also possible to create fractional ownership by tokenizing an asset. For example, you could create 100,000 tokens representing fractional shares of a piece of fine art. This lowers the barrier of entry for investing in expensive assets.
Tokenization is also helpful for representing utilities and services within a blockchain ecosystem. For example, you can create a token to grant access to a specific platform or service. In addition, users can buy, sell, or use tokens to participate in token-gated services.
There are many types of crypto tokens, most of which use some token standard. For example, the Tron blockchain uses TRC-20 tokens, and a brand new Bitcoin token standard created in 2023 allows BRC-20 tokens on Bitcoin.
Two of the most popular token standards are on Ethereum. First, the vast majority of tokens are ERC-20 tokens, the primary type of Ethereum token. They’re fungible, meaning they’re interchangeable like dollar bills. They’re also divisible into smaller units. This makes microtransactions and precise value transfers easy.
The ERC-721 token standard is used for non-fungible tokens (NFTs) on Ethereum. Each ERC-721 token represents a distinct asset like digital artwork, collectibles, or virtual real estate. The uniqueness and scarcity of NFTs make them highly valuable and sought after.
ERC-721 and ERC-20 have significantly contributed to the growth and adoption of digital assets.
One of the defining attributes of crypto tokens is their programmability. Smart contracts govern tokens, self-executing agreements with predefined rules and conditions coded on the blockchain. This programmability allows tokens to have specific functions and behaviors, making them more versatile and easy to automate.
You can program tokens to distribute rewards, facilitate transactions, or enforce governance rules. Programmability also allows interoperability between different tokens and decentralized applications (DApps). This makes integration and interaction within blockchain ecosystems possible.
Digital assets like crypto coins and crypto tokens create endless possibilities and innovation in blockchain technology. Of course, the differences between the different types of digital assets depend on how they’re made and used. But native cryptocurrencies and smart contract tokens have a valuable place in the crypto ecosystem.
Digital assets have the potential to revolutionize many technologies and industries. They provide new levels of liquidity, accessibility, and programmability. They also unlock social and economic possibilities by offering novel ways to trade, invest, and participate in decentralized networks.
If you’re ready to explore the crypto world further and create your token, continue exploring the Add3 platform. Our user-friendly interface allows you to deploy your token in just a few clicks. Choose your blockchain, name your token, and set its parameters. Are you ready to get started?
