When I first learned about Cryptocurrency I only knew of bitcoin, Then later, I learned of litecoin and ethereum. Not long after I learned there are thousands of cryptocurrencies/tokens. How is this a thing? Do they all do the same thing essentially?
In very simple terms crypto can be broken into two terms. Currencies and tokens.
Currencies
Cryptocurrencies for the most part aim to be a decentralized method of exchanging value. Each one uses some sort of decentralized ledger. (I would say blockchain; but I don’t want to offend the DAGs)
They are the native asset of a blockchain (or other Decentralized Ledger Technology). For example: Ethereum is the native asset of the Ethereum blockchain. It is the driving force behind the whole ecosystem. Ethereum is used to send itself or tokens built on the blockchain, it is used to deploy new contracts, and to operate the contracts.
Not all cryptocurrencies are created equal. Different blockchains offer different features. Such as:
- Value transfer
- Mining
- Smart contracts
- Private transfers
- High transaction times
- Low transaction fees
- Proof of Stake, Proof of Work, and more
Tokens
Tokens are smart contracts built onto an existing blockchain. The tokens are minted, not mined. They have a wide variety of purposes and sometimes no purpose. The blockchains they are built on are decentralized, so anyone with a bit of the native currency and some programming knowledge can deploy their own contract and make a new token.
Different than cryptocurrency, to send tokens you pay a fee using the native asset. ERC20 tokens (built on the Ethereum network) such as USDC cost Ethereum to send.
Tokens have many different purposes as well. Some are placeholders until a unique blockchain is made, then offering a 1:1 swap. Some are essentially a security offering shares in a project. Some tokens have utilities like bridging different blockchains or enhancing blockchain functions. Some link video games to the blockchain.
This is just a bare bones guide. Crypto in general is very complicated and nuanced. Hopefully this helps you learn Just Enough To Get U In Trouble.
Image by Gerd Altmann from Pixabay
If I can understand something, so can you.