Cryptocurrency lingo is full of technical jargon. As a result, many terms are frequently confused with one another without much consideration as to their significance. This might be time-consuming for investors looking to grasp and enter the crypto market.
The three words: cryptocurrencies, crypto tokens, and crypto commodities are often confused for one another in interviews and other discussions. However, they all hold unique meanings that become important to understand when determining a valuation framework for investment opportunities. For example, the value of a cryptocurrency is derived from how well the coin adheres to characteristics of money. In contrast, the value of a crypto token largely depends on factors such as protocol adoption or robustness.
A brief overview of the differences between cryptocurrencies, crypto tokens, and crypto commodities is provided below.
Cryptocurrencies are one of the most fascinating investment possibilities on the market today. Cryptocurrencies, often referred to as digital money, are a subset of electronic coins that meet the standards set out by traditional paper money. The following are some of its features: a store of value, unit of account, and fungibility (or the ability to be utilized regardless of its history of transactions).
Bitcoin, Ethereum, and Litecoin are some examples of cryptocurrencies. Cryptocurrency valuing frameworks tend to consider things like traction for the said currency as well as its supply schedules. The terms “altcoin” and “coin” are synonymous with regard to cryptocurrency.
In broad terms, a crypto commodity is an tradable or fungible asset that may be used to represent a commodity, utility, or contract in the real or virtual world through unique tokens on a blockchain network. Some people consider blockchains creating tokens as crypto commodities. CPU power and other computer system features are said to define crypto commodities in one case, while in the other case they are defined as components of cryptocurrencies.
With the help of an illustration, it may be easier to see how tangible coins are linked to their virtual counterparts.
In the physical world, oil is a commodity. It has an associated cost in extracting it from the ground and is used to power global commerce. In crypto commodities, things work similarly. There’s a price tag on their creation and they’re utilized to run the cryptocurrency economy.
Cryptocurrency has no inherent value. It is a market-based commodity that depends on the quantity and speed of processing power, as well as storage capacity, available to the system. Because it’s used as a foundation block to create smart contract tokens, Ethereum’s blockchain is another example. The Ethereum Enterprise Alliance (EEA), made up of several large organizations, has come together to establish a framework and common technology for creating apps on its blockchain.
Cryptocurrencies, like crypto tokens, are built on blockchains. The most prevalent sort of tokens is cryptocurrencies. However, crypto tokens are more comprehensive representations of blockchain value. Value is represented in a variety of ways, including as cryptocurrencies and loyalty points and assets developed on the blockchain.
Ethereum provides the blockchain platform for tokens that are used to develop services and products. For example, Tronix (TRX) is a token for the entertainment industry while EOS is a infrastructure token powering decentralized applications. You can find a full list of Ethereum tokens here.
Even though they are often used synonymously in media, cryptocurrencies, crypto commodities, and crypto tokens are three distinct entities. These differences become especially important when talking about possible regulation and valuation changes down the line.