The difference between Token and Cryptocurrency

Tokens and cryptocurrencies are not exactly the same thing.

In fact, “cryptocurrency” (or “coin”) means a blockchain-based electronic money, or on another distributed ledger.

Each cryptocurrency must have its own transaction log, so for example Bitcoin has its own Blockchain, Ethereum has its Blockchain, IOTA has its Tangle-based distributed ledger, and so on. In short, a coin a ledger (usually with blockchain).

Once the transaction ledger has been created, however, it is necessary to issue tokens that are actually exchanged among cryptocurrency users, and whose exchanges will be transactions stored on the distributed ledger (ie on the blockchain). For example, for BTC token (i.e. Bitcoin),it has already been issued about 17 million, with a maximum of 21 million. In addition, electronic tokens are divisible, so token portions can also be exchanged. For example, a Bitcoin (i.e. 1 BTC token) can be split up to one hundred millionth, called “Satoshi”, so, if you want, you can exchange even very small figures.

However, thanks to the Ethereum smart contract introduction, it is possible for anyone to issue their own tokens with a so-called ICO (Initial Coin Offer), and with that it has been created a clear distinction between tokens that don’t have their own ledger (they use other coin ledger) and currencies with their own ledger.

Therefore, cryptocurrency tokens that have their own register, such as Bitcoin, are called “coin”, while coins issued on the other cyptocurrency’s ledger are instead called “token” only. So Bitcoin is a coin, as well as Ethereum, Litecoin, XRP (Ripple), IOTA, while when you issue a token with an ICO, perhaps on the Ethereum blockchain, this remains only a token.

A further distinction between cryptocurrencies is among those that have a public ledger, which can be consulted, such as Bitcoin, Ethereum, Litecoin, and others that have clouded it, such as Monero or Zcash.
In fact, the latter makes transactions untraceable precisely because their ledger is not completely and publicly legible, and are called “high level of privacy” cryptocurrencies. Instead the more traditional cryptocurrencies, like Bitcoin, have a completely public ledger on which anyone can consult all the transactions that have been recorded in time since birth.

The most famous tokens are Binance Coin (BNB), EOS and, until recently, Tron (TRX). Also the Venezuelan Petro is a token, issued on the NEM blockchain.

Once issued, a token can then be converted into a coin, as happened recently to Tron, which has launched its own network (a mainnet) with its own ledger. So, first a token was issued on the Ethereum blockchain, called TRX, then the Tron mainnet was launched and all of its tokens were converted into coins. Now Tron is a coin, even though it was born as a token, and all of its tokens are now stored in the Tron distributed ledger.

Most tokens are issued on the Ethereum blockchain, with the ERC20 format, and although they are stored on the Ethereum blockchain they have nothing to do with Ether (ETH) network. In fact, we should make a distinction between the coin Ether and the Ethereum network, which are not the same thing. ERC20 tokens don’t interact in any way with ETH, except during ICO time when buyers usually pay them in ETH (depending on how the smart contract is created and managed).

Nowadays to issue a new token is not so complicated, because in theory it’s enough to write a special smart contract for example on the Ethereum network.It’s not a child’s play, but such all things, if you know what you’re doing it’s within anyone’s reach. Instead, to create a new coin is much more complex, because you have to develop a new protocol, make mainnet, make sure you have enough hardware to be able to run it properly, and hope someone uses it. Instead the tokens use another coin’s mainnet, so it’s just enough issue them.

CREDITS

This article was originally written in Italian by Marco Cavicchioli and translated in English by Stefania Stimolo for NovaMining.

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