Crytpocurrencies vs. Tokens And A Starbucks Grande Latte
It’s 2018, and you may have opened a Coinbase account and bought a fraction of a Bitcoin which is sitting in your Coinbase account. Maybe you’re still on the sidelines about this whole Bitcoin and cryptocurrency craze and getting confused by all the terminology being thrown around in this space like:
- Tokens
- Cryptocurrencies
- ICO
- Digital coins and digital assets
The list goes on and on.
Truth be told, there are no official definitions of these terms since the space is so new and depending on who you ask, the definition changes. Since you are investing or thinking about investing your hard-earned dollars into a token or cryptocurrency, wouldn’t it make sense to understand what you are actually investing in?
We were curious ourselves so did a little bit of research and attempt to break down what some of these terms mean in the simplest way possible, and why we generally believe in utility tokens as the best long-term investment.
At a high level, here are some quick and dirty definitions:
- Cryptocurrency — Digital currencies like Bitcoin and Litecoin
- Equity Token — A digital share in a company
- Utility Token — Something that gives you future access to a product or service such as Ethereum
The biggest distinction is between a cryptocurrency and token, but even within the token category there are many overlaps in the definitions. To make things more complicated, an ICO (initial coin offering) may be giving you the opportunity to purchase a cryptocurrency, token, or both. Let’s dive a bit deeper.
Cryptocurrencies
Bitcoin. Litecoin. Bitcoin Cash. You’ve probably heard of at least 1 of these before. These are the most similar to the U.S. dollar or the Euro with but with a key difference: complicated encryption algorithms regulate the usage.
Imagine buying a $10 gift card at Starbucks. Let’s say Starbucks comes out with a new scheme where instead of the gift card being worth 10 U.S. dollars, it’s worth 10 Starbucks Dollars, and grande lattes are worth 2 Starbucks Dollars. Your gift card allows you to redeem 5 grande lattes.
But let’s say those 10 Starbucks Dollars might be worth 12 Starbucks Dollars in the future since everyone believes the value of a Starbucks Dollar will be much higher in the future. You can now send and receive Starbucks Dollars with other people who have bought Starbucks gift cards. In addition to that, Starbucks ensures that all the Starbucks Dollars you send and receive are verified and cannot be tampered with.
Equity Tokens
These types of tokens are more rare, but it’s like buying a share in a company. The main difference is that there aren’t as many regulations with buying an equity token compared to buying a stock in Starbucks through Etrade or Fidelity.
Imagine Starbucks did not file for an IPO and decided instead to sell its stock to private investors. Unless you have a friend who is a banker working with Starbucks, you won’t be able to buy stock in Starbucks no matter how awesome you think Starbucks coffee is or how fast they will grow in the future. With an equity token, you would be able to buy a “stock” in Starbucks, but the SEC has been more strict about this type of token and regulation will eventually regulate this investment.
Utility Tokens
Our favorite type of tokens. Taking the Starbucks example further, let’s say you met Jerry Baldwin in Seattle in 1971 right before Starbuck launched. Jerry tells you he is thinking about building a coffee brand, and wants to get the community involved. He thinks the community should be able to make their coffee, pay baristas, and open new Starbucks franchises with his new Starbucks utility token.
You think Starbucks the brand will grow into something huge, and you want to be a part of that ecosystem of brewing coffee, opening franchises, and picking the beans used in different roasts. By buying these utility tokens, you have a chance to participate in this new company in a tangible way.
Ethereum, Waves, and a bunch of other platforms offer such utility tokens. The tricky part of utility tokens is that people can bid up the price of these tokens even though they never plan on using them in the future.
Conclusion
In terms of long-term investments, we like to analyze utility tokens because it involves understanding the business models and technology behind the company launching the token. It’s similar to judging any startup since you have to take many different factors into consideration, but the value is that you can be a part of the company unlike other cryptocurrencies and tokens.
Currency Crate is a monthly cryptocurrency subscription service that sends handpicked cryptocurrencies straight to your digital wallet. Join our mailing list at CurrencyCrate.com — we’re launching soon.
