Cryptocurrency, Coin, Altcoin, Token: Why So Many Names
What is a Cryptocurrency?
A cryptocurrency can be defined as a digital asset that is encrypted using cryptography for extra security.
The prefix ‘crypto’ in the name stands for ‘cryptography’, which refers to the use of encryption techniques to keep information safe against attackers and verify whether the sender is genuine.
You may have already heard of the term cryptography before, perhaps in a movie or history class because it was used in the World War II by the Allied Forces to send messages in private and the term has been widely covered by the popular war movies.
Cryptocurrencies are mostly decentralized, trustless, peer-to-peer, secure and they have no borders.
With a traditional currency, you would have to trust central banks, local banks, and many people that would participate in your transaction.
However, with a cryptocurrency, mathematics handles everything for you and intermediaries are left out of the process, eliminating the need for trust and the expensive costs.
Coins, altcoins and tokens, on the other hand, are also a cryptocurrency and they bear the characteristics of a cryptocurrency.
In other words, a cryptocurrency is a much broader term than coins, altcoins and tokens. It is the generic name to define all.
What is a Coin?
To elaborate, a coin is the name given to cryptocurrencies that usually act very similar to money, enabling users to store or transfer it, or refer to it to express the cost of a good, or to pay for that good with it.
What is an Altcoin?
Any cryptocurrency that bears the characteristics of a coin but that is not bitcoin is called an altcoin, which refers to ‘alternative to bitcoin’.
Altcoins are mostly created to provide better, faster, cheaper alternatives of bitcoin but mainly they have similar features with bitcoin and they can be used as a currency, just like bitcoin.
In other words, an altcoin is almost the same thing as a coin, except for the fact that altcoins do not include bitcoin; so coin is a little bit broader term than altcoin.
Types of Altcoins
Altcoins are Also Divided Under Two Sub-Categories:
- Some of the existing altcoins are actually a fork of Bitcoin and they use Bitcoin’s open-source code to create a new blockchain. We call the blockchain of this type of altcoins ‘Bitcoin-forked blockchains’
- Fork refers to copying of the original source code of a software package in order to develop a new software program that is different and independent from the original.
- Examples: Litecoin, Dogecoin, Namecoin, Peercoin and Auroracoin
- The other types of altcoins that aren’t forked from Bitcoin have their own blockchain and protocol developed from scratch. We call the blockchain of this type of altcoins ‘native blockchains’
- Examples: Ethereum, Ripple, Monero, Nxt and Waves
Whether an altcoin is a fork of Bitcoin or not, it is common among every altcoin to have its own blockchain.
What is a Token?
A token is another type of cryptocurrency that cannot be accepted as money or currency, unlike coins.
Of course, they can be a store of value but they mainly have another functionality rather than serving as a currency.
A token is essentially a cryptocurrency developed on top of other blockchains such as Ethereum or NEO for a specific purpose.
In other words, these tokens don’t have their own blockchain and live on existing blockchains.
Types of Tokens
There are Two Types Of Tokens:
One is usage tokens which are used for accessing the service provided by the project that is issuing the tokens.
- Bitcoin and Ether are examples of usage tokens which give you access to the Bitcoin payment network and Ethereum Virtual Machine.
Another kind of tokens is work tokens that give individuals the ability to work for the project and contribute to maintain the system.
- Augur is an example of a work token which is used to serve as an oracle, as well as Siacoin which enables users to rent their idle storage
Finally, let’s do a recap of what we have learned. As you can see on the figure above, the term ‘cryptocurrency’ is the broadest term in the terminology and accordingly it has the highest place among others on this hierarchical tree.
Then, cryptocurrencies are broken down into two sub-categories; one of them is ‘coin’ and the other one is ‘token’.
Coin refers to cryptocurrencies that usually act very similar to money, and the most popular cryptocurrency, bitcoin, is a coin as well. Then, there is this other sub-category of coin called ‘altcoin’, which simply refers to any coin that is not bitcoin.
Next, there is ‘token’, which is another type of cryptocurrency but in contrast with ‘coin’, it is not money or currency.
On the other hand, tokens have other uses and accordingly, they are divided into two sub-categories called ‘usage token’ and ‘work token’.
Usage token refers to the kind of token which is used for accessing the service provided by the project that is issuing the tokens while work token refers to the type that gives individuals the ability to contribute to the project.
Lastly, altcoins have two sub-categories as well which are altcoins with bitcoin-forked blockchains and with native blockchains.
These terms basically refer to whether a specific altcoin has its own blockchain and protocol built from scratch or not.
The term cryptocurrency covers all of the digital assets using cryptography, which include coins, altcoins and tokens.
These terms slightly differ from each other and every detail is explained in this article.
DisclaimerThe writer’s views are expressed as a personal opinion and are for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.
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