Difference between Token and Cryptocurrency: What You Need to Know to Enter Crypto without Doubts

What is a Cryptocurrency? Your Digital Money with its Own Network

A cryptocurrency is digital money that is on the blockchain or its own network of computers. Imagine it as a private club in which all its members have a copy of the ledger and, every time someone makes a transaction, an entry is made in this ledger so that everyone can see it, but anonymously.

This makes the system extra secure and almost immune to hacking. According to Cointelegraph, its main function is twofold: to use it as a means of payment to acquire things as if it were a virtual bill or as a store of value, which you can keep saved in the hope that its price will increase over time.

Some famous examples are Bitcoin, Ethereum, and Cardano. One of the geniuses of cryptocurrencies is that they are mega divisible. If you had a $1 bill that couldn’t be divided into cents it would be a shame. Bitcoin, for example, can be divided into 100 million parts and each one is called a satoshi.

The useful thing about this is that it allows you to make operations of the size you require, from buying a mansion in Dubai to a small coffee at the bakery.

What is a Token? Your Versatile Companion on Existing Blockchain Networks

A token is a digital asset that differs from a cryptocurrency because it does not have its own blockchain. It is basically built and operates on an existing network, such as Ethereum, for example.

If you think of the Ethereum blockchain as a digital highway and tokens as the different vehicles that travel on it, you will realize how versatile they are. They are used for many more things than just money.

They can represent the right to vote in a digital company, access to an exclusive service, part of a digital work of art, to give a few examples. The uses of tokens are extremely varied. In decentralized finance (DeFi), they represent participation in a digital investment fund.

In the field of video games, it can mean a reward for completing a mission. A token can serve as a very valuable tool for ownership and interaction in the digital ecosystem, which goes far beyond money.

Key Differences between Token and Cryptocurrency: Not the Same, But Complementary

Let’s unravel this thread! The key difference between cryptocurrency and token lies in their origin and purpose, according to Cointelegraph:

Why is it important to understand this difference? How it affects your Crypto and your decisions

The fact that you understand the difference between cryptocurrencies and tokens is crucial to making informed and safe decisions in the digital market, and this will allow you to have much greater control over your investments.

Having knowledge of whether an asset has its own blockchain or if it is dependent on another network affects its custody and of course its security. An asset like Bitcoin, which has its own blockchain, is very strong and secure in terms of security because it is not dependent on other platforms.

For its part, a token is linked to the security of the network it is issued on, such as Ethereum, for example. Knowing this distinction gives you the freedom of decision and empowers you to choose the asset that best suits your goals.

Understanding these differences, according to Coinbase, allows you to identify the advantages of each type of asset in real and everyday situations. If your goal is to invest long-term, a cryptocurrency like Bitcoin or Ethereum may be a smart choice due to its role as a currency and its robust infrastructure.

If your goal is more to participate in a DeFi system or in a video game, tokens would be the perfect tool because they provide you with functions that go beyond simple money or a means of payment.

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