The growing technology of blockchain is shrouded with many technical terminologies and computer language which can sometimes be a huge barrier for the layman to understand blockchain and cryptocurrencies.
So, here's a guide to help you break it down into a more understandable concept.
What Is Cryptocurrency?
Coins and tokens start with knowing what cryptocurrency is. A cryptocurrency is a virtual or digital currency that is made secure using a process called cryptography, which is a technique used to verify and keep transactions secured.
While there are already many cryptocurrencies in the market, the first official cryptocurrency created is the Bitcoin which is a decentralized system powered by a public ledger that validates and records all transactions made within that system. This system is called blockchain.
Before Bitcoin, there were already many other cryptocurrency systems created such as Bit Gold and Hash Cash. These attempts on cryptocurrency, however, were not successful.
The creation of Bitcoin marked a new milestone for the world of cryptocurrencies due to its decentralized and distributed nature. It also precipitated the emergence of other cryptocurrencies like coins and tokens.
Altcoins Vs. Tokens
One important thing to note is that all tokens and coins are regarded as cryptocurrencies even though not all of them function as a currency. Other blockchain-enabled coins and tokens serve as a system for data and information management. The rest take the form of a smart contract.
The term cryptocurrency is regarded as a misnomer because before something can be considered a currency it needs to represent a unit of value or medium of exchange. While Bitcoin does qualify as an official cryptocurrency, other coins and tokens are still regarded as such because since Bitcoin kickstarted the creation of these coins, any other coin created after Bitcoin was already considered a cryptocurrency.
The most common types of cryptocurrencies are altcoins or simply coins and tokens.
You'll find that alternative cryptocurrency coins, coins, or altcoins are used most of the time interchangeably.
Altcoins refer to the coins that came after Bitcoin was created. They are called such because these are cryptocurrency coins that people can use as an alternative from Bitcoin.
Many people were impressed with the invention of Bitcoin, but other people thought that it could still be improved. This is what inspired the creation of alternative coins.
Most altcoins are simply a fork or variant of the original Bitcoin. Due to the open-source nature of Bitcoin, developers were able to copy the code and add their improvisation.
Before long, some people deviated from the original way of creating altcoins, which is to use the original Bitcoin coding system. Instead, they built their blockchain and protocol to curate their altcoin. Some examples are Ethereum, Ripple, and NEO.
Tokens, on the other hand, represents a particular utility or asset. Your cue in differentiating a token from an altcoin is that altcoins are created using an independent blockchain system. Tokens, meanwhile, functions on top of another blockchain.
Tokens can represent any commodity that is tradeable and fungible such as gold and silver. It can also represent loyalty points, as well as other cryptocurrencies.
Creating tokens is the best option if you don't have background coding because you don't have to alter the original design of the system. You also wouldn't have to create a new blockchain from scratch. Ethereum is one example of a cryptocurrency that lets you create your token.
You can distribute your token when you publish it in an initial coin offering, which is often used for crowdfunding.