Cryptocurrencies, tokens, and virtual currencies are some names we usually give to digital assets. Since Bitcoin first saw the light of day in 2008, crypto projects have spread worldwide, and the number of new cryptocurrencies is increasing daily.
The number of existing projects has led to different types of products with other objectives and functionalities. But in El Dorado, we don't go with complications, so we will explain the simplest and most common way to differentiate cryptocurrencies from tokens.
Cryptocurrencies are digital currencies native to the blockchain where they work, for example, the case of BTC that works on the Bitcoin blockchain or Ether that works thanks to the Ethereum blockchain.
Cryptocurrencies share specific characteristics with the money we use in our day-to-day life. They are fungible, divisible, portable, and have a limited supply. In addition, both are used for the same purposes: to acquire goods or services, to save, and as a store of value.
As there are similarities, there are also significant differences. The main one is security, as a cryptocurrency is almost impossible (not to say impossible) to counterfeit, all thanks to blockchain backing and decentralization. The aforementioned is another big difference, as cryptocurrencies are not regulated by any centralized institution such as a bank or a company.
Tokens, on the other hand, need a third-party blockchain to function. Ethereum is the most widely used platform to create tokens. These tokens are ERC-20 tokens.
The purpose of tokens covers a much broader spectrum than cryptocurrencies. Each token has a specific use set by the person or company that creates it.
There are many types of tokens, but here are the most common ones:
- Governance tokens: are used to grant the user who owns them the right to participate in the decisions of a project. For example, to propose changes, new features, or corrections.
- Non-fungible tokens or NFT: These tokens function as digital certificates of ownership over a unique or non-replaceable item. These digital files of value are hosted on the blockchain and can represent artwork, photos, videos, audio, collectibles, etc.
- Stablecoins: Yes, stablecoins are a type of token that, unlike the previous ones and, as the name suggests, are stable; that is, they never change the price. The most famous example is USDT, a token anchored to the value of the US dollar.
We hope we have clarified your doubts about the differences between cryptocurrencies and tokens. As we said at the beginning, we are in a vast ecosystem that is also constantly expanding, which makes it very complicated to know and use each term ideally.
We invite you to download our application, where you can buy cryptocurrencies like Bitcoin or tokens like USDT in a simple way, and best of all is that you can do it with your local currency and your favorite payment method.
What are you waiting for? Start your way to financial freedom with El Dorado.