Learning Crypto: What's the Difference Between Cryptocurrencies and Tokens?
Let’s take a look at the difference between tokens and coins.
- A cryptocurrency, or coin is a unit of value that exists on its own blockchain, like Bitcoin, Ethereum, Dash, NEM and Steem.
- A token is a unit of value that is created on a blockchain that acts as a host for it, so tokens do not have their own blockchains. Additionally, “…tokens give the holder a right to participate in a given blockchain activity.” Source
You may have heard the phrase ERC20 tokens, these are tokens that have been created using the Ethereum blockchain.
But Ethereum isn’t the only platform designed for this.
Ethereum is definitely one of the most popular options for those looking to create tokens and hold ICOs but there are other platforms like:
This allows people to utilize tokens to create a community and another way to monetize things they create, like content, goods and services.
Now that you’re a bit more familiar with the difference between tokens and crypto coins, or currencies, it’s very important to know what the tokens were created for, especially if you are a U.S. citizen, and here’s why:
Back in July the SEC, which is the US securities and exchange commission, ruled that the DAO token was considered a security.
Bottom line here being that If you want to sell securities, you need to license them.
This has created a bit of a panic in the ICO and token realm.
Now we are seeing new labels like utility tokens and app tokens. These are attempts to differentiate between tokens that are considered securities and those that are designed for real use cases. Because this entire wave of cryptocurrencies and tokens is new and innovative, naturally it is having to navigate uncharted waters with these legalities.
No one wants to suffer the wrath of the US government due to unknowingly purchasing tokens that are considered securities.
Everyone needs to understand that the unprecedented nature of this situation means that labels are pretty arbitrary at this point and the regulations will continue to evolve.
So consider this my strong advisement to do your own research and educate yourself before taking part in ICOs or purchasing tokens that could be considered securities.
Additional Reading/Sources:
Articles:
What is a Token
Fortune Magazine Breaks Down SEC Announcement
More on Utility Tokens and Other Lables
BitcoinMagazine on SEC and Ethereum
Token Platforms:
Ethereum
Waves
Bitshares
Steem SMTs
Thanks a lot! Very interesting topic
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What is your opinion and how the US gov't will eventually try to regulate digital currency? Is this some you expect to happen in 2018 or further down the road. I think it needs to be addressed sooner than later as there is already $200 billion in this space.
I have no clue how they will decide to regulate this. If they were smart they'd help to facilitate the growth of crypto startups within the country... I'm sure they've been working hard to get this SEC regulation on the DAO token and that token went bust about two years ago. That's certainly an indication for how slow bureaucracy is compared to the advancements of crypto.
They are not always smart about things, but I sure that this time they are. The U.S. needs to be at the center of the rise of digital assets and digital currency. I'd hate to see that center gravitate towards another jurisdiction because the U.S. regulators decided to be crypto-unfriendly.
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Didn't know about the difference, very informative post, thank you (resteemed, upvoted and you have a new follower)
PD: I'm coming from Twitter! Hi world! (:
Thanks. Great explanation!!!
Cryptocurrencies are tokens, that use special software that controls, their supply, rate of inflation and use a blockchain to make the network trusted. It’s the only and very significant difference. A token can be produced by anyone, with no ruling of supply and confirmations.
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Good explanation. These are precarious times and everyone is still figuring out how to navigate the waters. I just hope that ruling doesn't scare away would be participants in SMTs.