DIFFERENCES BETWEEN DIGITAL ASSETS, TOKENS AND COINS

*Visit our cryptocurrency learning guide for in-depth analysis on Bitcoin, Ethereum, blockchain technology, ICO's and much more.

July. 27, 2020

DIFFERENCES BETWEEN DIGITAL ASSETS, TOKENS AND COINS

*Visit our cryptocurrency learning guide for in-depth analysis on Bitcoin, Ethereum, blockchain technology, ICO's and much more.

World Crypto Index is designed to help you understand everything about the world of cryptocurrency, and on this page, we will clarify some of the most fundamental concepts that are used in the crypto space; Assets, Tokens and Coins.

WHAT IS AN ASSET?
Of these three, assets are the only concept with such a broad definition. The term “asset” is not only used when talking about digital currencies, but in the financial and banking sectors as well. That’s because an asset normally refers to a physical resource with economic or financial value which is expected to provide benefits to the owner(s) in the future. Assets can be either owned or controlled to produce value and can be either tangible or intangible.

Traditional examples of assets used to include things like cash, real estate and gold. Recently, however, digital currencies such as Bitcoin have been classified as assets as well.

WHAT IS A COIN?
A coin is the official digital currency used by a cryptocurrency platform. For example the designated coin of the Ethereum platform is Ether (ETH) and for the Ripple infrastructure it is XRP. Every single coin is built on an entirely independent blockchain.

These digital coins are encrypted using cryptography and are decentralized. They work without a regulatory entity or intermediary because every transaction is verified by a network of nodes (computers operated by miners) that are recorded in a public distributed ledger (blockchain). A coin can be used as a medium of exchange, a store of value and potentially, as a unit of account.


WHAT IS A TOKEN?
A token is a scarce digital asset that exists on top of an existing coin or blockchain. At the moment, most tokens exist on the Ethereum network. To understand tokens we must realize that Ethereum is not just a currency, but is instead a network formed by many nodes that are connected to one another. Most notably, the Ethereum network can be used to create smart contracts.

Smart contracts are basically a set of instructions that follow a very simple procedure called IFTTT (IF THIS, THEN THAT). When certain requirements are fulfilled, another instruction gets executed, and this is how complex programs such as DAPPS (Distributive APPS) are created with Ethereum. This is also how tokens are created; they are essentially much simpler and specific smart contracts that represent something in exchange for ETH. Because they are smart contracts they can be tracked on the Ethereum blockchain.

Tokens have become very useful within the cryptocurrency market because you don’t need to modify an existing protocol or create a new blockchain for them.