What Are Cryptocurrencies?

Cryptocurrency, altcoins, and crypto tokens are often erroneously used interchangeably in the virtual currency world. However, cryptocurrency is the superset, and altcoins and crypto tokens are its two subset categories.

A cryptocurrency is a standard currency used for making or receiving payments on the blockchain, with the most popular cryptocurrency being Bitcoin.

Altcoins are the various alternative cryptocurrencies that were launched after the massive success achieved by Bitcoin. The term means alternative coins—that is—other than bitcoins. They were launched as enhanced substitutes of bitcoin with the claims to overcome some of the pain points of bitcoin. Litecoin, Bitcoin Cash, Namecoin, and Dogecoin are common examples of altcoins. Though each has tasted varying levels of success, none have managed to gain popularity akin to bitcoin.

Crypto tokens represent a particular fungible and tradable asset or a utility created over an initial coin offering (ICO) that is often found on a blockchain.

Key Takeaways

  • Cryptocurrencies are digital currencies used to facilitate transactions (making and receiving payments) along the blockchain.
  • Altcoins and crypto tokens are types of cryptocurrencies with different functions.
  • Crypto tokens are a type of cryptocurrency that represent an asset or specific use and reside on their blockchain.
  • Created through an initial coin offering (ICO), crypto tokens are often used to raise funds for crowd sales.

Understanding Crypto Tokens

Crypto tokens, which are also called crypto assets, are special kinds of virtual currency tokens that reside on their own blockchains and represent an asset or utility. Most often, they are used to fundraise for crowd sales, but they can also be used as a substitute for other things.

For example, one can have a crypto token that represents x number of customer loyalty points on a blockchain that is used to manage such details for a retail chain. There can be another crypto token that gives entitlement to the token holder to view 10 hours of streaming content on a video-sharing blockchain. Another crypto token may even represent other cryptocurrencies, such as a crypto token being equal to 15 bitcoins on a particular blockchain. Such crypto tokens are tradable and transferrable among the various participants of the blockchain.

In essence, the cryptocurrencies and altcoins are specific virtual currencies that have their own dedicated blockchains and are primarily used as a medium for digital payments. On the other hand, the crypto tokens operate on top of a blockchain that acts as a medium for the creation and execution of decentralized apps and smart contracts, and the tokens are used to facilitate the transactions.

Crypto tokens are usually created, distributed, sold, and circulated through the standard initial coin offering (ICO) process that involves a crowdfunding exercise to fund project development.

These crypto-assets often serve as the transaction units on the blockchains that are created using the standard templates like that of the Ethereum network that allows a user to create tokens. Such blockchains work on the concept of smart contracts or decentralized applications, where the programmable, self-executing code is used to process and manage the various transactions occurring on the blockchain.