In the nascent field of virtual currency, Bitcoin had no competition when it first debuted in 2009. By 2011, new varieties of crypto started to appear as competitor platforms, and currencies launched their own versions using the blockchain technology that Bitcoin was based on. The race to generate more cryptocurrency suddenly began.
As they say, the rest is history. The drive toward crypto is a financial services boom that has grabbed the entire world and isn’t limited to any particular country. So it will be a restraint if you say that cryptos are now widely used.
The cutting-edge nature of crypto’s blockchain technology is one of the crucial reasons that has captured many people’s souls, minds, and wallets. Moreover, it’s impressive that blockchain technology and the idea of decentralization can be used in so many other societal sectors, demands, and applications outside of finance.
In this article, we will examine the multiple meanings of cryptocurrencies. So let’s start this journey.
But, before we move forward, understanding the difference between crypto coins and tokens is essential.
Crypto coins Vs. tokens
First things first: Understand the distinction between a coin and a token.
The terms “coin” and “token” are often used when discussing cryptocurrencies. Even though they might sound similar, there is a difference. It’s essential to keep their integrity.
A virtual coin functions similarly to traditional currency and is created on its blockchain. It can be used as a way of trade between two parties conducting trade together as well as a way to store value. Bitcoin is an example of such a coins.
On the other hand, tokens are much more versatile than digital currency. On top of a current blockchain, tokens are produced. They can be incorporated into software applications (for example, to grant access to an app, identity verification, or tracking goods moving through a supply chain). In addition, they can illustrate virtual art (like with NFTs or “Non-Fungible Tokens” that certify something as unique). Even the use of NFTs with physical assets, such as actual works of art and real estate, has been tested. Ether is a type of token that is applied to transactions on the Ethereum network.
Type 1: Currency Tokens
The most common type of crypto is the first one people think of. It serves as a store of value or a medium of exchange in the first place, like Bitcoin. The parties involved in the exchange claim that transactional tokens, also known as tokens, have value.
Bitcoin was first launched in 2009 to create a better mousetrap—to develop a better currency that would address some of the constraints of conventional fiat currency.
But even digital currency has its limits. The one-megabyte block size and throughput capacity of the Bitcoin network are two significant disadvantages.
Privacy is yet another problem with Bitcoin. While everyone on a ledger sees the contents and transactions of a specific wallet, Bitcoin addresses are anonymous in the notion that a wallet is not associated with one particular person in a database.
Some digital currencies have been developed in response to these restrictions to address some of the problems with the first currency.
Type 2: Utility Tokens
App coins and user tokens are other names for utility tokens. They give users access to a service or product for the future. In the present blockchain ecosystem, it’s common for startups to raise money through an Initial Coin Offering (ICO), in which they issue tokens that backers can use to gain access to their service in the future. To add some sugar to the deal, token holders get a discount on the retail or final price of the finished good.
Although utility tokens weren’t intended to be investments, many individuals participate in utility token ICOs in anticipation that the tokens’ value would rise as interest in the company’s goods or services rises.
Type 3: App/Platform Tokens
Platform cryptocurrencies are complete blockchain technologies with their own protocols and rules that serve as a foundation for distributed apps (dApps), or future applications, to be constructed. They are made to get rid of intermediaries, establish marketplaces, and even introduce new cryptocurrencies.
The most well-known platform cryptocurrency is Ethereum. Ethereum tokens are digital tokens built on the Ethereum blockchain, a decentralized system for running smart contracts that also serves as the basis for other, more recent cryptocurrencies.
NOTE: The Ethereum Merge is happening; read more about it here!
App tokens could stand in for a virtual subscription or membership that users can swap for platform benefits, or they might be virtual equity shares that users can purchase in exchange for future profit sharing.
Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn’t represent any investment advice or WazirX’s official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.