Cryptocurrency: Token vs Coins

Digital assets include cryptocurrency and crypto tokens. The two most common blockchain-based digital assets are cryptocurrencies and tokens.
It’s important not to confuse the terms “cryptocurrencies” and “tokens” as there are fundamental differences that distinguish them.
Cryptocurrencies have their own blockchains, whereas crypto tokens are built on an existing blockchain.

cryptocurrency and crypto tokens

Cryptocurrencies Coins

A cryptocurrency is the native asset of a blockchain network that can be traded, utilized as a medium of exchange, and used as a store of value. Cryptocurrencies are not only used to pay transaction fees on the network but are also used to incentivize users to keep the cryptocurrency’s network secure.

Cryptocurrencies typically exhibit the following characteristics:

  1. Decentralized, or at least not reliant on a central issuing authority. Instead, cryptocurrencies rely on code to manage issuance and transactions.
  2. Built on a blockchain or other Distributed Ledger Technology (DLT), which allows participants to enforce the rules of the system in an automated, trust-less fashion. 
  3. Uses cryptography to secure the cryptocurrency’s underlying structure and network system.

Cryptocurrencies Tokens

Tokens are created by platforms that build on top of those blockchains. For instance, the Ethereum blockchain’s native token is ether (ETH). While ether is the cryptocurrency native to the Ethereum blockchain, many other different tokens also utilize the Ethereum blockchain. Crypto tokens built using Ethereum include DAI, LINK, COMP, and CryptoKitties, among others.

Types of Tokens and Their Use

Utility Tokens

Utility tokens are released by a company to provide its users with a mechanism to pay for a new company product or service, which has most probably been developed on blockchain technology. It is usually beneficial to buy utility tokens during the ICO sale since the tokens during the ICO are offered at a significantly lower price than the market rate.

Security/Equity Tokens

Security tokens are different from utility tokens in that they are limited by specific federal laws and rules of stock trading. Equity tokens, by nature, can also be accessed outside of the platform on which they are developed. The value of security tokens may rise or fall according to the project’s performance, similar to stocks, which is not the case with utility tokens.

Asset Tokens

Tokens that are backed by a real asset, such as gold, real estate, or bonds, are called asset tokens. These tokens represent the value of real assets and can be used for buying/selling the assets that they back.

Reward Tokens

These are special tokens that are designed to act as a reputation token for a specific blockchain application. These are given in rewards, usually for free, to someone as appreciation.

At Kelly+Partners Accountants Burbank, we understand the intricate dynamics of digital assets and offer specialized cryptocurrency consulting services tailored to your business needs. Whether you’re exploring utility tokens for innovative ventures or delving into asset-backed tokens representing tangible assets like real estate or bonds, our expertise ensures strategic guidance every step of the way.

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