A common misconception within the crypto community is the use of the terminology, meaning that even the most avid cryptocurrency users can get their ‘coins’ and ‘tokens’ mixed up!
But we at PumaPay wanted to give you some handy tips to help you differentiate between your cryptocurrencies, virtual currencies, and digital currencies (yes, they aren’t all the same thing!).
Digital currency is probably the best place to start when discussing key terms, as it basically just describes any form of electronic money. This sets it apart from physical cash as digital currencies can only be used in their electronic or digital form, and can be either regulated or unregulated.
So, we can use digital currency to describe all virtual currencies, cryptocurrencies, coins, and tokens (we’ll go into the differences between these below).
Virtual currencies refer to digital currencies that are usually unregulated, used in specific virtual communities, and mainly controlled by their creators. Because of this, virtual currencies are not issued by a bank authority, which can explain their volatility.
We can also further characterize virtual currencies into centralized virtual currencies and decentralized virtual currencies (most commonly referred to as cryptocurrencies).
Typically, cryptocurrencies run using decentralized blockchain systems without a central authority. This has actually resulted in some debate recently concerning the classification of more centralized cryptocurrencies, such as Facebook’s Libra.
But, as well as their decentralized nature, what really sets cryptocurrencies apart from the other virtual currencies is their strong use of cryptography, making them secure from cyber attacks.
Coins vs. Tokens
Within cryptocurrencies, we can even further subcategorize to give us cryptocurrency coins and tokens.
Cryptocurrency coins describe cryptocurrencies that exist on their own blockchain, like how Bitcoin (BTC) is the native coin of the Bitcoin blockchain. And while BTC is probably one of the most popular coins, alternative coins, or Altcoins, are also available, such as ETH, LTC, and many, many more! We can use these coins in a similar way as to how we use physical cash – to easily pay for goods and services.
Cryptocurrency tokens differ from coins because they don’t have their own blockchain and were instead built on another platform. In fact, this is where PumaPay’s PMA currency token lies, running on one of the most popular platforms to create new tokens, the Ethereum blockchain.
As well as currency tokens, we can label tokens depending on how they are being used. For example, if tokens were created to be used within decentralized apps they are referred to as utility tokens. Or security tokens can be used to represent your share or investment in a project.
So, while you may still see the majority of these terms used interchangeably, we hope this has helped you to understand their differences!
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