What is the difference between token and cryptocurrency? – Financial education – Estadão E-Investidor – The main news of the financial market

  • Blockchain is what unites all the tools in the crypto market. It is not necessary to know the technological details to invest, but it is important to differentiate the concepts to better understand the risks and characteristics.
  • Some types are included in others, but there are differences in the objectives. All cryptocurrencies are crypto-assets, and all crypto-assets are tokens. But not all cryptocurrencies are digital currencies, and not all tokens are cryptocurrencies.

To invest in the token, crypto asset and cryptocurrencies, no need to be a tech expert. However, it is important to understand at least each concept and the typologies of the sector to know, for example, if there is regulation by governments or supporting instruments to reduce volatility.

Every asset has a function or purpose. This is the fundamental point of understanding that the investor must have,” says Vitor Delduque, Director of New Business at MB Tokens. The main basis of this market is the block chaina large public ledger that records transactions without an intermediary.

All transactions are validated in a decentralized way by a fraction of the network, called node. “This makes operations irreversible and prevents a single entity from maliciously altering transaction data,” says Pablo Sáez, Partner and Head of Digital Technology, NTT DATA.

What is a token?

NFTs are tokens that have grown in popularity over the past year. (Source: Shutterstock/Reproduction)

A token is the digital representation of an asset within the blockchain. “Everything can be tokenized in the same way that every deal can either be part of a buy and sell contract or part of a wallet,” Sáez comments. There are several types of tokens, but they can be classified into four categories:

  • Payment tokenswhich are digital currencies, such as the bitcoinsethereum, among others;
  • Smart contractwhich represents an electronic agreement between persons without the need for the intermediation of a third party;
  • Non-fungible tokens (NFT)which represent something unique, which cannot be exchanged for another similar good, such as a work of art;
  • Security tokenswhich are electronic representations of securities such as stocks.

What are crypto assets?

Crypto assets are cryptographically protected digital assets. which are operated and stored in digital networks, blockchains, for different purposes, including the decentralization of information.

They represent values ​​that only exist in numeric records, being an intangible asset that has no physical substance, such as intellectual property, patents and trademarks. The price depends on economic laws, supply and demand.

And cryptocurrencies?

Cryptocurrencies have their own designs and their value is influenced by mining costs. (Source: Shutterstock/Reproduction)

Cryptocurrencies are digital currencies created on blockchain, using an advanced encryption system that ensures the validity and record of transactions. They serve as a medium of exchange and financial speculation.

They have already defined protocols, with schedules for extension and improvement. “Anyone can have access to this information, although most have never been interested in reading about the currencies they invest in,” Delduque explains.

It is a myth that the value of cryptocurrencies simply fluctuates based on supply and demand.Saez warns. Its value is also determined by the computational effort used to operate the asset or transaction in an equation comprised of energy, equipment, personnel, infrastructure, and connectivity costs.

Difference Between Tokens, Cryptocurrencies and Crypto-Assets

The difference between token and cryptocurrency is that token is a digital representation of something and cryptocurrency works as a substitute for physical cash. If that something is tradable, it is a crypto asset. On the other hand, if this crypto-asset functions as a means of payment, then we have the cryptocurrency. Therefore, every cryptocurrency is a crypto-asset and every crypto-asset is a token.

But there is a point of attention: not all crypto assets are a cryptocurrency. “There are also intellectual property assets, patents and trademarks,” Sáez recalls. Neither not all tokens are crypto assets. Smart contracts, for example, are classified as tokens, but are not considered crypto-assets.

With curiosity, only cryptocurrencies can be native to the blockchain. That is, they have their own code for their folders. Other crypto-assets and tokens must use the “borrowed” ledger of a digital currency to record transactions.

How to make money with tokens?

Ultimately, what matters to the investor is how a token can be turned into cash. The most common way to make a profit is to buy and sell cryptocurrencies on the market in a manner similar to what happens with stocks and commodities on the exchange..

As investment options of the sector are taking shape in a way that is more similar to other more traditional financial products, offering a increased familiarity and security for first-time investors.

Most of our tokens are tied more to fixed income securitiesin which investor you already know what will happen at the end of the project,” says Delduque. When purchasing the token, the expected gain is predefined.

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