Title: Two Major Digital Assets: Cryptocurrency & Crypto-Token | How does they differ?

Digital currencies have grasped a vital position in the world financial market in the last decade. Many people are very interested in investing in blockchain-based digital assets like cryptocurrencies and tokens. But this is totally a knowledge-based market where a huge portion of investors is not learned enough about the tools of this market. One of the common deficiencies is the misconception about cryptocurrency and digital tokens.

The biggest differentiation between the two is that cryptocurrencies have their own blockchains, whereas crypto tokens are built on an existing blockchain. Some people often use these terms interchangeably, though these are different at all.

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Actually, both of these instruments, cryptocurrency and crypto tokens, are included by the term “Digital Asset”. Because both instruments are non-tangible assets that are generated, exchanged, or traded, and stored in a digital format. They have some common features like utilizing cryptography which is the modern encryption method through which the authenticity of crypto assets is ensured by terminating the chance of altering or double-spending. Besides they differ in terms of many features.

The most key point of the distinction between these two assets is that a cryptocurrency is the native asset of a blockchain whereas the crypto token is generated as a part of the existing Blockchain platform. In other words, a Blockchain may have only one cryptocurrency. But it can own more crypto tokens built on top of it. For example, the only cryptocurrency of the Ethereum Blockchain is ETH. MATIC, LINK, USDT, etc are the crypto tokens created on top of this blockchain.

Cryptocurrency can be created by itself in two ways:

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1. Proof of Work system. Example: Bitcoin.
2. Proof of Stake. Example: Cardano.

Unlike the cryptocurrencies, the crypto tokens are not generated by themselves into the blockchain system, but rather implemented with some smart contracts. The contract includes the signing of a transaction that debits a token from the tally of an account and credits the same to the other account’s tally. This process of generating crypto tokens is called tokenization

For easy understanding, we can compare both with some of our real-life transactions. If cryptocurrency is compared as the medium of exchange of our economy like money, then tokens very much resemble some assets like stock shares of a company.

I think it is very easy for newcomers to comprehend the basic difference between these two digital assets.

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Ref : source

Regards,

Veigo