What is the difference between token, cryptocurrency, virtual, and digital currency?
In the digital world, especially when regarding digital payments and transactions, the words “token”, “cryptocurrency”, “virtual currency”, and “digital currency” tend to be used as synonyms. But as a matter of fact, there is a difference between these terms and their meaning. Regularly, these words are used as synonyms, but the truth is that there are differences among them, and sometimes there is confusion when they are used.
What is a token?
The tokens are digital assets that can be used within the ecosystem of a specific project. The main difference among tokens and cryptocurrencies is that tokens require for a general blockchain platform to work. For example, Ethereum is the most common platform for creating tokens, mainly because of the smart contract’s performance. The tokens created on the Ethereum blockchain are generally known as ERC-20 tokens, for example, Tether.
Another important thing is that tokens can be used as a means of payment, but it is not their main purpose. The main purpose of tokens is that they are created to be used within decentralized apps (DApps) and their network. These are called utility tokens and are intended to grant access to holders to the whole project.
What is a cryptocurrency?
A cryptocurrency is a digital currency that has its own independent ledger on the network. Their core concept is that they function through cryptography. They may have their own blockchain or be based on an external blockchain. Cryptocurrencies also have the characteristic that they can be sent or received. Another property for cryptocurrencies is that they tend to have the same characteristics as fiat money which are: expendable, divisible, portable, and have a limited supply. Therefore, cryptocurrencies are meant to be used as fiat money, which is intended to pay for goods and services, or as an investment.
What is a virtual currency?
A virtual currency is a digital currency used in an ecosystem that is not regulated, issued or controlled by its developers, and that is used as a payment method among the members of a specific virtual community. For example, a virtual currency (not based in cryptography) is the money that is integrated in the videogames, such as the FIFA points in the EA Sports videogame. The virtual currency exists within the game ecosystem. An example of its use would be to pay with the game’s virtual currency, the unlock for new elements and levels.
What is a digital currency?
A digital currency is a common term used to describe all types of electronic money, like virtual currency or cryptocurrency. The term digital currency was introduced in 1983 by David Chaum. The main characteristic of digital currency is that it is strictly digital, unlike fiat money which is represented in a physical way. Digital currencies are intangible. They can only be possessed and spent online through digital wallets or specific networks. Generally, there is no direct middleman or intermediary. Therefore, the transactions are immediate, and the fees are lower.
These are the main differences for digital currencies (tokens, cryptocurrencies and virtual currencies). As it was mentioned before, they are commonly used as synonyms. But the fact is that they are different from each other, and the context where they are used may vary according to each term. This is why the importance of knowing and being aware of the main points that make them different from each other.
