The concept of cryptocurrency originated in America around 1983, since the inception of Bitcoin in 2009 there have been a lot of cryptocurrencies that were formed after that. To date, there are 1,000+ cryptocurrencies in existence.
If we split the word cryptocurrency into two words, currency is a means of exchange of value whereas crypto means cryptography which means hiding some information using software or a computer. In essence, the word cryptocurrency together means to share some information without revealing identity.
One of the advantages of cryptocurrency is that it doesn’t need governments or banks to initiate transactions.
Cryptocurrency is a type of digital currency that has no central controlling authority instead it uses blockchain technology to record transactions and issue currency. Blockchains are secured using cryptography and consensus mechanisms, hence the term cryptocurrency.
Have you ever wondered how cryptocurrencies work?
Cryptocurrencies are powered by blockchain. A blockchain is a public digital ledger where transactions are recorded. The ledger is stored in a network of computers or nodes. Each node has the same copy of the ledger. Every transaction on the blockchain is verified by crypto miners.
Once it has been confirmed, it is recorded on the blockchain, and the public ledger is updated. Once the transaction is recorded on the blockchain it’s permanent.
Units of cryptocurrency are created via a process called crypto-mining, the process involves the usage of computer power to solve complicated mathematical problems that generate coins. These cryptocurrencies can be purchased from brokers and stored in a cryptographic wallet.
Cryptocurrency is an intangible asset, a key will be provided to move a record or a unit of measure from one person to another without a trusted intermediary.
Even though Bitcoins were introduced in 2009, both the application of blockchain technology and cryptocurrencies are still emerging in financial terms. This is expected to flourish in the future. This technology might be used for transactions such as bonds, stocks, and other financial assets.
What is a token on the blockchain?
“A token on a blockchain is a digital asset that represents value or interest in something, and is built on existing blockchain.”
Tokens can be used for raising funds, storing value, making purchases, and representing an investor’s stake in a company. A short note on this is given below:
Raising funds
Tokens are utilized in initial coin offerings (ICOs) in order to raise funds for projects.
Storing value
Tokens can employed to store value.
Making purchases
Tokens can be utilized to make purchases or trades.
Representing an investor’s stake in a company
Tokens can represent an investor’s stake in a company.
Types of tokens
- Utility token: Provide holders access to a product or service.
- Security token: Tokens that are linked to ownership of assets that already exist.
- Non-fungible token (NFT): This represents digital assets that aren’t mutually interchangeable.
- Mirrored assets: These are the synthetic trade versions of assets.
- Meme coins: Tokens that are created as jokes, that are deemed to have value only because of their popularity and speculative trading.
Difference between token and cryptocurrency
Even though tokens and cryptocurrencies are digital assets that operate in a decentralized way, they differ in several aspects. Those differences are listed in the table below:
| Category | Token | Cryptocurrencies |
| Structure | Tokens are built on top of the blockchain | Cryptocurrencies are built into the blockchain |
| Purpose | Used to facilitate transactions on a blockchain | Established to be used as currency |
| Regulation | Regulated by smart contracts (software protocols that determine how transactions take place) | Are not regulated by any government authority |
| Price | The price is determined by the demand for the underlying blockchain | The price is determined by the demand for it as a store of value |
| Fees | Fees imposed for transactions are comparatively higher | Fees imposed for cryptocurrency transactions are cheaper |
| Types | Two main types of tokens: security tokens and utility tokens. | Types of cryptocurrencies: Ethereum, Bitcoin, Binance Coin, Tether, Litecoin, Solana, TRON, Altcoins, Polygon, Dai, Cardano, etc. |
Come let’s get to know about the two important tokens;
Security tokens
Security tokens are considered securities by regulators and are subject to securities laws. For more clearer understanding, these tokens are like shares in a company when you buy a security token you are expecting it to increase in value over time and possibly even pay dividends they fall under Securities Law offering investors protection but also requiring compliance with the regulation. These tokens are about investment and growth.
Utility tokens
These tokens have no ownership rights but can be utilized for a specific purpose. Utility token gives you access to a product or service. Imagine it like a token at a video arcade, you don’t buy the token as an investment instead you purchase it and play the game. Utility tokens are about usage and access.
What is an Initial Coin Offering (ICO)?
An initial coin offering (ICO) is a fundraising mechanism where new projects sell their underlying crypto tokens in exchange for fiat currencies, Bitcoin, Ethereum, or cryptocurrencies.
For example, a startup needs money to launch a new idea. Instead of going the traditional route with investors, they do an ICO. Basically, they create their own cryptocurrency tokens and offer them for sale, they can often buy these tokens using Bitcoin, Ethereum, or crypto or even fiat currencies.
It’s like an IPO where you purchase shares in a company but instead buy into this new crypto project. If the project takes off the value of these tokens could Skyrocket, it’s a bit like getting in on the ground floor.