Who wasn’t enamored by cryptocurrency when it first rushed in? Everyone was head-over-heels indeed! Cryptocurrency swept the world off its feet when it was launched. Many people were quick to do their research and invest in it, anticipating that digital currencies would someday become widely accepted worldwide. They predicted right, and today, we find that cryptocurrency can be an exciting investment.
Getting To Know Altcoins and Tokens
Cryptocurrencies are digital currencies that are not controlled by a central authority. Their decentralized nature is due to blockchain technology, a public ledger that keeps track of transactions.
Blockchain technology is an invention of Satoshi Nakamoto and is viewed as the beginning of a new type of Internet. Blockchain technology ensures that transactions made over the Internet are secure, using cryptography and other sophisticated processes.
Because cryptocurrency has become mainstream since its implementation, many different types have been developed. Today, there are two standard categorizations of cryptocurrencies: the altcoin and the token.
Altcoins are alternative digital cryptocurrencies that exist apart from Bitcoin. They are a way of exchange that uses cryptography to record and secure transactions. On the other hand, tokens are typically used to access the features of blockchain-based projects that are not meant to function as a digital currency. Compared to coins, tokens are more functional.
Most coins do not function as a medium of exchange and are instead used as commodities. This implies that the term ‘cryptocurrency’ is not accurate since this term applies to a unit of account, a medium of exchange, and a store of value. Nevertheless, it is essential to remember that both altcoins and tokens are considered cryptocurrencies, regardless of their functions.
What is an Altcoin?
The word ‘Altcoin’ comes from the term ‘alternative coin’ and refers to cryptocurrencies that were launched after the success of Bitcoin. Altcoins are digital coins that are not related to Bitcoin.
They can be different from Bitcoin in a lot of ways. An altcoin may have an alternate method for distributing coins or have another mining algorithm. Most altcoins modify some parameters that are not very important to conceive a new type of coin with varied features. Namecoin, Peercoin, and Litecoin are examples of altcoins.
Some altcoins are not derived from Bitcoin’s trademark open-source protocol. Instead, they have their protocol and their blockchain. Examples include Ripple, Omni, and Ethereum.
What makes altcoins similar to each other is that they all have their independent blockchain. This is where transactions related to their native coins occur.
What is a Token?
A token represents a utility or an asset that constantly resides on top of a blockchain. Tokens are a representation of basically any tradeable asset, such as loyalty points or other commodities.
To create a token, you do not have to build blockchains from scratch or modify codes. All you must do is follow a template on the blockchain to create your token. This Is due to smart contracts, which are self-executing codes that do not require third parties.
Tokens are distributed through an Initial Coin Offering (ICO). An ICO is a method where funds are raised for a new venture into cryptocurrency. Start-ups generally use it to avoid the strict process of increasing the capital required by banks and lenders. During an initial coin offering, tokens are sold to early backers for legal tender.
Being involved in cryptocurrency may present a challenge since the terminologies can be confusing. However, we are always free to research a beneficial investment and what we should avoid. Buyers, beware and make sure to do your research first before deciding to invest.