Tokens and Altcoins – understanding the difference

At the beginning of the development of Crypto, Bitcoin was the first one to be known all over the world. Then there was Bitcoin and everything that followed its creation. Then ICO’s in 2017 took place and regulators followed. The crypto market was roughly stratified in the following order: Bitcoin, Altcoins, Tokens. But it wasn’t just one altcoin or token. These areas of interest have been expanded to an extent that includes definitions of various crypto use cases. CoinMarketCap shows that there are over 10,000 crypto projects in total: cryptocurrencies, smart contract platforms, stablecoins, governance tokens, altcoins and token projects. The vision of these 10,000+ projects started with Bitcoin.

What you need to know about Altcoin

All cryptocurrencies other than Bitcoin are altcoins. This includes Bitcoin Cash and Bitcoin SV. A cryptocurrency is defined as a payment system where the token is a reward for that particular blockchain. Therefore, if we take for example Ether, it is unique for the Ethereum blockchain. Based on the same logical assumption, XRP is unique on the XRP blockchain. DASH is for DASH’s own blockchain and LTC is on the native Litecoin blockchain. Dogecoin is an altcoin that has a token called Doge. DOGE serves as a reward and payment vehicle inherent to the Dogecoin blockchain. These are all considered cryptocurrencies and altcoins. All of these crypto coins are also tokens. Cryptocurrencies and altcoins are technically tokens, but crypto also has its own token ecosystem.

What you need to know about Token

Tokens come in many forms. Like governance tokens, they may also be defined by their function. Security tokens enable securitization of assets. On the other hand, the definition of utility tokens seems to be evolving. Governance, Security, and Utility Tokens are typically associated with products built on existing blockchains. A good example of this is Ethereum. Ethereum has its own token called Ether, commonly referred to as a cryptocurrency. But Ethereum is a smart contract platform, and Ether is both a reward and a gas consumable. All its DeFi products built on Ethereum have tokens. Tokens built on Ethereum are based on various token standards. The most common standards are ERC-20 (fungible tokens) and ERC-721 (non-fungible tokens) Ethereum’s tokens are governance, security, or utility. They can also be NFTs or asset-backed tokens. Asset-backed tokens are linked to various ERC-20 stablecoins such as USDC.

Besides Ethereum, there are a few other platforms based on smart contracts. These blockchain platforms are designed to emulate the best elements of Ethereum while improving on its weaknesses. There are currently over 80 smart contract platforms. Each of these platforms has its own token. These tokens are typically used for payments and governance. The most popular alternative smart contract platforms include EOS, Cardano and Polkadot. DeFi projects like those developed on Ethereum have created a whole new ground for governance tokens.

More about Crypto coins vs Crypto tokens here.

What needs to be understood is that at its core, crypto is a value discovery ecosystem. Evaluation is done in a variety of ways. This includes smart contract platforms, cryptocurrencies, altcoins, and all tokens involved in each project. Tokens were effectively used to raise significant funds for speculative open source software projects in cryptocurrencies. Used as a reward for loyal users of the DEX, giving them the freedom to choose which platforms to support. These represent how miners create incentives to secure decentralised networks. They are also used to digitise unique assets like NFTs. They are also used to facilitate capital formation in the form of programmable securities.

It’s fascinating that this whole process emerged 13 years ago and continued to blossom up to this day.

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