The term cryptocurrency refers to both digital tokens and coins. But what are the factors that separate tokens from coins?
In the crypto world, conversations always keep changing and things slowly start getting confusing and cryptic, especially when it comes to tokens.
If you are a pro in the industry, you might have experienced instances where you hear novices refer to tokens as coins and vice versa. We hear them often too, and that’s why we thought breaking down the concept is a need of the hour.
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Before we proceed further, let’s define cryptocurrency as tokens fall under this general category.
Cryptocurrency, as the name suggests, is a digital currency that is decentralized and encrypted using cryptography. Cryptocurrencies happen to be of different types, and they mainly serve the purpose of verification of fund transfers and the creation of monetary units. Whenever we use the term cryptocurrency, it is to be noted that we are speaking of both tokens as well as coins.
Now, let’s look at the difference between digital tokens and digital coins.
Both Bitcoins and Altcoins possess their an independent blockchain of their own and their main purpose remains to act as a medium of transfer like money.
On the other hand, tokens associate to a utility or asset and it is hosted atop another blockchain. Therefore, platforms such as Ethereum are important for tokens to operate on and they are created during instances when an ICO has to be launched. Digital tokens are usually provided in exchange for cryptocurrencies such as Bitcoin, Altcoin, and Ether to early investors.
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Though there are a lot many types of tokens that serves specific purposes, the two important types of tokens you need to be aware of include the security as well as utility tokens.
In simple words, security tokens mean an investment contract where security tokens could represent anything from entitlement dividends to interest payments or shares in a company. In terms of economic function, security tokens are akin to bonds, equities, or derivatives.
Security tokens often have to follow a regulatory guideline based on the country they hail from. Therefore, when you are planning an ICO launch, it is important that you keep in mind the regulations established by the jurisdiction as well.
Have you ever seen tokens being given out at an arcade that provides you access to games?
Similarly, utility tokens give users access to a specific company’s product or service. They are neither regulated nor investments.
Often, the lines between a security and utility tokens blur down, especially during cases where there is a lack of a globally accepted framework, or during constant regulation shifts.
It is important you understand the difference between a utility and security token to stay tough in the changing cryptocurrency market. From planning a crowd sale to holding tokens, you need to be able to differentiate.
Lastly, before launching an ICO, ask yourself – ‘What are my ICO’s needs?’