It is important to note that all coins or tokens are considered cryptocurrencies, even though most of the coins do not work as currency or medium of exchange. It technically represents a unit of account, a store of value, and a medium of exchange. All of these properties are inherent within Bitcoin, and since the cryptocurrency space was kicked off by Bitcoin Creation, all other Bitcoin conceived coins are generally regarded as cryptocurrency, though most do not meet the characteristics of an actual currency.
The most common categorization of cryptocurrencies are:
- Alternative Cryptocurrency Coins (Altcoins)
Alternative cryptocurrency Coins are also called Altcoins, it simply refers to coins that are an alternative to Bitcoin. The majority of altcoins are a variant (fork) of Bitcoin. With Bitcoin integrated open source, original protocol with changes to the underlying codes, therefore a completely new coin with a different set of features, the conception.
Fun fact: A software fork occurs when there is a change in the underlying programming protocol, resulting in the “forking” or splitting of the original blockchain. This usually results in the creation of a new coin. There are different types of forks like hard fork, soft fork or a random fork.
There are other altcoins that are not derived from Bitcoin’s open source protocol. They have created their own blockchain and protocol that supports their local currency. Ethereum is the most important example.
One commonality of all altcoins is that they eachown their own, independent blockchain, where transactions in relation to their home coins occur in.
Fun fact: The first Altcoin was Namecoin, which was created in April 2011. It is a decentralized open source information register and transfer system.
Tokens is a representation of a particular asset or utility that is typically located on another blockchain. They can represent all assets obasically, the fungible and tradable, from commodities to loyalty points to smooth other cryptocurrencies!
Creating tokens is a much simpler process, as you do not have to change the codes of a particular protocol or create a blockchain from scratch. All you have to do is follow a standard template on the blockchain that you can create your own tokens. This functionality to create your own token is possible through the use of smart contracts; programmable computer codes that are self-executing and do not need third-party use.
Tokens are created and distributed to the public through an initial coin offering (ICO), which is a means of crowdfunding for a young company, by funding the release of a new cryptocurrency or token project development. It is similar to an initial public offering (IPO) for stocks, with critical distinctions. Many people are crazy about ICOs as they represent a great way to identify interesting projects.
The main difference between altcoins and tokens is in their structure; altcoins run segregated currencies with their own separate blockchain while tokens operate on a blockchain, which facilitates the creation of decentralized applications.