The world of cryptocurrency can be dizzying to understand if you’re a beginner. One main source of confusion is the terms used to describe the “crypto assets” of cryptocurrency. But it doesn’t have to be that confusing if you start with the basics. And that means knowing the difference between altcoins, coins, and tokens.
Defining Altcoins, Coins, And Tokens : A Look at Alternative Cryptocurrencies
First, There Was Bitcoin is the very first cryptocurrency ever invented. It is also the standard by which other cryptocurrencies are judged. That is why the word “altcoins” was invented, referring to “alternative coins”.
The term “alternative coins” was then shortened to “altcoins”. So, first we had Bitcoin then all the other coins subsequently invented are now referred to as “altcoins”.
The crypto world is dominated by Bitcoin since it was the first and the most popular, by far. However, from time to time some players in the crypto world have felt it necessary to create other cryptocurrencies.
Thus, it became their occupation to develop “altcoins” rather than let all cryptocurrency activities be transacted using Bitcoin alone.
It’s similar to what’s happening in the fiat currency world wherein the US dollar tends to dominate other fiat currencies which are also being traded. In this analogy, the US dollar would be represented by Bitcoin with the performance of all the rest of the fiat currencies compared to the performance of the US dollar.
The word “coin” is a slang word borrowed from fiat currencies to refer to cryptocurrencies too. Each type of cryptocurrency is a particular type of coin. For example, Bitcoin is one kind of coin while Ethereum is a different kind of coin that is distinct from Bitcoin. There are so many other types of coins but they are all cryptocurrencies.
You have probably come across the term “tokens” as you try to learn about cryptocurrency trading. A “token” is sometimes used as a synonym of “coins”. But there is a key difference between the two terms – while coins are popularly used as a form of currency in e-commerce, tokens are usually employed for other transactions.
This difference in the terms is crucial to avoid making the mistake of trying to pay for online purchases with tokens, when you should be using coins instead.
Find out more : What Are Altcoins? Types, Pros And Cons Explained
Why are Tokens Different from Coins?
One reason you should learn the difference between coins and tokens is the cost of production of each. Generally, everyone already understands that creating a coin or a token (an act known as crypto mining) is very expensive based on the sheer amount of electricity consumed.
It is so expensive that the common cryptocurrency trader probably lacks the capital needed to create (or “mine”) any cryptocurrency. This also explains why there are not that many new cryptocurrencies being “mined” every year. It’s just too costly.
Knowing that, coins are proven to be more expensive to mine than tokens. Perhaps this is the reason that coins are accepted for their e-commerce value as “digital money” while tokens are used for other activities instead that have very little to do with e-commerce. Coins are intrinsically more valuable since their production cost is much bigger.
The Role of the Blockchain in Differentiation of Crypto Assets
It is a good idea to learn about the role that blockchain technology plays in cryptocurrencies. Each type of cryptocurrency is used primarily in the blockchain where it was first introduced during the mining stage. So, a key example is that Bitcoin is used in the Bitcoin blockchain while Ethereum is only transacted within the Ethereum blockchain.
You may be wondering how that works. Well, the easiest way to imagine it is that blockchains are actually the data itself interconnected in a series of “blocks”. When you use your Bitcoin to initiate one transaction on the Bitcoin blockchain, all the other blocks in that blockchain will record the transaction.
This is why some experts believe that blockchain technology makes it nearly impossible to fake a blockchain transaction. You would have to alter the data within all the blocks within that particular blockchain to fake the transaction.
So, if you are using a particular type of altcoin, coin, or token, that transaction you are doing will be recorded on the blockchain that the crypto asset belongs to.
And that means you don’t have to worry that an outsider will alter the record since he would have to go to all the blocks, hack into them individually, alter them in the exact same way, and cover up his tracks. This is the great equalizer effect of blockchain technology.
Why is it important to learn all of this? For one thing, there are more cryptocurrencies now compared to when Bitcoin was first introduced to the public. According to explodingtopics.com, there are supposedly 22,904 cryptocurrencies in existence.
But it is safe to assume that not all of those are popular or being actively traded in the crypto trading world. This means you don’t have to learn each and every one of those 22,904 cryptocurrencies.
Another reason that you should learn all of this is that knowledge is definitely power. No one will take time out to hold your hand as you go into crypto trading or participating in e-commerce.
So the more knowledgeable you are, the better prepared you will be for active crypto trading in this new unregulated industry in the future.