People usually identify both cryptocurrency and tokens same. But in truth, there are two separate entities. When coming to investments in digital assets, it is very essential to understand how cryptocurrency differs from tokens and vice-versa. It is one of those basic understandings every investor must possess for a successful investment in digital assets. To dwell more on these two, it is important to understand digital assets and the importance of investing in them. The following article will give an overall insight into different concepts like digital assets, cryptocurrencies and tokens.
What is called digital assets?
People usually confuse digital assets with cryptocurrency. But there are many notable differences between both concepts. It is very important to understand these key differences between them. First of all, a digital asset is a non-tangible asset group. It means that it does not have a physical presence it only exists in digital format. And it can be created, traded and stored. And when taken in the context of blockchain, the digital asset includes in them both cryptocurrencies and crypto tokens.
The word ‘crypto’ in them refers to the cryptography technique which is a high technology of encryption used in them. This technique of cryptography ensures the authenticity of crypto assets. It also helps in removing the possibilities of double-spending and counterfeiting.
Cryptocurrency v/s tokens
Both cryptocurrency and tokens differ in many aspects. And it is very much important to understand these differences to have a clearer view of both.
Issued directly by Blockchain, Cryptocurrency is a native asset of blockchain technology where buying, selling and storing are possible and valuable. Utilized as a medium of exchange and store of value, cryptocurrency pens with multiple no possibilities for every online trader and investor. Because of these aspects and characteristics of Crypto currency, it is often referred to as blockchain’s native currency.
By the medium of exchange, it means cryptocurrency serves the purpose of securing an asset which can be used for acquiring goods and services. By store of value, it refers that cryptocurrency can be used as an asset which can be held or exchanged for a fiat currency. High security, decentralized nature and use of blockchain technology are the major characteristics of cryptocurrency. Decentralized, means that it has got no involvement from a third party agent like banks or other financial institutions. You also don’t need to have a bank account for your crypto investments. But you do need the platform of crypto exchanges where buying and selling of crypto currencies take place.
The process of developing crypto currencies is called mining which is a highly energy consuming process. The high cost and high energy needed, make the process of crypto mining highly complex.
What are called tokens?
Tokens also called crypto tokens are blockchain-based units of value developing over the top of already existing blockchain networks. Even though they have similarities with cryptocurrencies, both of them are entirely separate classes of digital assets.
Tokens are created from the platforms that developed over the already existing blockchain networks, unlike cryptocurrencies which are the native asset of blockchain technology. Ether, the token of the crypto coin Ethereum is an example of a crypto token. Even though ether is the token for Ethereum, many other multiple tokens utilized the Ethereum blockchain network. These tokens can perform multiple functions over the blockchain in which they are built.
The major characteristics of crypto tokens are;
- Programmability
- Permission less
- Transparency
- Trustless
Crypto assets can be used to present the physical asset, traditional digital assets or certain specific utilities or services. Both tangible forms like real estate and art and non-tangible forms like digital assets can be represented through tokens.
The digital asset is an ever-changing phenomenon where newer technology comes and goes. To address the multi-faceted needs and demands o a wide range of users, this constant change and upgrading are necessary to maintain its stability. And understanding how cryptocurrency and tokens differ from each other is also a concept that will widen our perception of investment and crypto knowledge.