Crypto tokens are digital assets that offer functionality over and above what a cryptocurrency does.
The best analogy to understand the difference is currency vs shares. Both of these have intrinsic value, but the token is valued in terms of the cryptocurrency.
So, a crypto token on Ethereum will be valued in terms of the Ether cryptocurrency. You can, of course, extrapolate this value into regular currency such as INR. Ethereum has by far become the most popular blockchain for crypto tokens. It uses its own Ether cryptocurrency on it.
These tokens are typically issued via initial coin offerings (ICOs) by companies to fund projects. The difference is, instead of raising US dollars, or Indian Rupees, or Euros, they raise funding via the native token of the blockchain they exist on, like Ether or Bitcoin or NEO.
Investors are given tokens that they can redeem for a product or service or something else of value. Unlike shares in a company that provides an ownership stake in the company, crypto tokens do not offer ownership. At no point is the investor part-owner in the company.
How is it different from Cryptocurrency?
A cryptocurrency is a digital asset (coin) that runs on its own blockchain. For instance, Bitcoin is on the Bitcoin blockchain.
I will define it in another way:
A cryptocurrency is a native token – a token native to its own blockchain.
Bitcoin was the cryptocurrency pioneer. Then came a whole bunch of other such coins, such as Ether (on the Ethereum blockchain), NEO on the NEO blockchain, Litecoin, Cardano, Ripple, Stellar, Tron, Chainlink, Tether, Dash, Monero, and so on. All these cryptocurrencies other than Bitcoin are grouped into a description – altcoin.
All these coins act as money. However, there are no physical coins. These coins exist as verified data on the blockchain. Every time you send these coins, the blockchain keeps track of them, with the many computers (called nodes) recording, checking, and verifying these transactions.
Although cryptocurrency is still in its infancy, many companies and service providers are accepting them for payment. You can transfer money, or you use them as a store of value (Bitcoin has increased in value from $1 in April 2011 to $59,386 at present).
Unlike cryptocurrencies, which are native tokens, crypto tokens are non-native tokens. They do not have their own native blockchains, instead of using existing blockchains and their respective cryptocurrencies as an exchange medium.
Types of Crypto Tokens
There are various types of such tokens based on what they offer, such as:
- Security or asset tokens
- Payment tokens
- Equity tokens
- Utility tokens
For instance, ICO tokens are security tokens since these tokens expect profit based on the assumption that the company issuing the token will do well, increasing the token’s value.
Payment tokens are used to pay for services and goods. Equity tokens represent stock in a company, although very few companies do this because the regulations are not clear around this practice.
Utility tokens are used to access a product or service, such as power or subscriptions. These are amorphous classifications, and some tokens might fall into more than one of these subsets. When the market for these tokens become larger and more established, regulators will probably come up with more specific classifications.
Difference Between Altcoin and Crypto Tokens
As explained previously, all cryptocurrencies are native tokens, while crypto tokens are non-native tokens. Native tokens have an intrinsic value – they are used as payment on the blockchain. It takes time and effort to create the native token by mining them. To learn more about crypto mining, here is a great tutorial.
On the other hand, the crypto token is more speculative. Though their value based on their native token, it can fluctuate depending on the token offers. No intrinsic value is associated with the token. If its demand is high, it goes up, if not down.
Best Crypto Tokens to Invest in 2021
Here are some of the most popular crypto tokens to invest in 2021
Uniswap is a DeFi (Decentralized Finance) protocol essentially used to exchange cryptocurrencies. It facilitates transactions between various crypto tokens through the use of smart contracts on the Ethereum blockchain. It is currently priced ~₹2,750 and ranks #8 in terms of market capitalization.
Tether is a crypto token issued by the company Tether Ltd. It is a type of stablecoin that helps anchor the value of cryptocurrencies to the price of national currencies. It is generally used by people who want to avoid extreme volatility in the crypto market. Tether is currently priced at ~₹80 and ranks #5 in terms of market capitalization.
It is an ethereum token that aids the running of Chainlink decentralized oracle platforms. It can be defined as a secure blockchain middleware as it intends to link smart contracts across blockchains. It is currently priced at ~₹3,000 and ranks #10 in terms of market capitalization.
FAQs on Crypto Tokens:
1.How to buy Crypto tokens?
You can buy crypto token by participating in their ICO’s. First, you have to register yourself for a genuine ICO and then transfer Bitcoin or Ethereum to the wallet address shared by them and get ICO tokens in exchange.
2. Which are the best Crypto Tokens?
Here are some of the most renowned crypto tokens:
3. What is the difference between a Crypto token and Crypto Coin?
The biggest difference between a crypto token and a crypto coin is that a cryptocurrency runs on its own blockchain while a crypto token operates on an existing blockchain.
4. Is Bitcoin a token or a coin?
Bitcoin is a cryptocurrency coin as it is the native token of the Bitcoin blockchain.
[su_note] KuberVerse is an educational initiative. Anything expressed here directly or indirectly is not investment advice. And we ask you to do your own research before investing. [/su_note]
Disclaimer : Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. The information provided in this post is not to be considered as investment/financial advice from CoinSwitch. Any action taken upon the information shall be at user's own risk.
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