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Currencies, Commodities, and Tokens: A Crypto Primer

What Do Crypto Tokens, Currencies, and Commodities Have in Common?
Anyone for a Merkle tree or a hash rate?

Technical language abounds in the cryptocurrency realm. As a result, some words are frequently interchanged without much consideration for their meaning. This can be a difficulty for investors who want to learn about the crypto market and invest in it.

Cryptocurrencies, crypto tokens, and crypto commodities are the most misunderstood of the three terms. In interviews and discussions, one stands in for the other. All three, however, have different meanings. When it comes to building a framework for investment appraisal, this distinction is critical. The performance of a coin in conforming to the properties of money, for example, determines its value. Crypto token prices, on the other hand, are determined by a separate set of characteristics, such as protocol adoption and robustness.

A quick primer on the differences between cryptocurrencies, crypto tokens, and crypto commodities is provided here.

TAKEAWAYS IMPORTANT

The term cryptocurrency refers to coins that have properties similar to traditional paper money.

Bitcoin, Ethereum, and Litecoin are examples of cryptocurrencies.

While the definition of a crypto commodity is debatable, the term refers to a tradable or fungible asset that can represent a commodity, utility, or contract in the real or virtual world via exclusive tokens on a blockchain network.
Crypto tokens are more general representations of the value of a blockchain. This value can be found in a variety of forms, including cryptocurrencies, loyalty points, and blockchain-based assets.

Cryptocurrencies

Cryptocurrencies are currently one of the most intriguing investing opportunities available. The word refers to coins that have the qualities of traditional paper money. Its fungibility, as well as its function as a store of wealth and unit of account, are among its qualities (or the ability to be used regardless of its history of transactions).

Bitcoin, Ethereum, and Litecoin are examples of cryptocurrencies. Typically, frameworks for valuing cryptocurrencies consider aspects such as the coin’s traction and supply timetables. The terms “altcoins” and “coins” are interchangeable terms for cryptocurrencies.

Unique opportunities exist for both short-term traders and long-term investors as cryptocurrencies continue to evolve.

Cryptocurrency Commodities

While the definition of crypto commodities is debatable, in general, the term refers to a tradable or fungible asset that can represent a commodity, utility, or contract in the real or virtual world through exclusive tokens on a blockchain network. Some people think of blockchains that are used to generate tokens as crypto commodities. Others have characterized cryptocurrency as attributes of a computer system, such as CPU power. Crypto commodities, on the other hand, are defined as building blocks for cryptocurrencies in both cases.

The term crypto commodity can also refer to the fact that “Bitcoin and other virtual currencies are encompassed in the definition and properly defined as commodities,” as stated by the Commodity Futures Trading Commission (CFTC) in 2014.
With the help of an example, their relationship to actual coins can be better understood.

In the physical world, oil is regarded as a commodity. The cost of extracting it from the earth is a certain amount, and it is used to power the global economy. Crypto commodities function in a similar way. The cost of producing them is high, and they are used to fuel the cryptocurrency economy.

For example, computing power (or the speed and number of processors deployed to generate cryptos) and storage capacity of a system are considered crypto commodities. Another example is Ethereum’s blockchain because it is used as a building block to generate smart contract tokens. Several large organizations have come together to form an Ethereum Enterprise Alliance (EEA) in order to establish a framework and common technology to make apps using its blockchain.

Crypto Tokens

Crypto tokens are similar to cryptocurrencies in that they are built on blockchains. Cryptocurrencies are the most popular form of tokens. But crypto tokens are larger representations of a blockchain’s worth. This value can be found in a variety of forms, including cryptocurrencies, loyalty points, and blockchain-based assets.

Ethereum is the blockchain that underpins a number of tokens that use its platform to construct services and goods. Tronix (TRX), for example, is a token for the entertainment business. EOS is a cryptocurrency that represents the infrastructure that enables decentralized applications to run. A complete list of Ethereum tokens may be found here.

Final Thoughts

Cryptocurrencies, crypto commodities, and crypto tokens are all distinct concepts that are sometimes used interchangeably in news articles and interviews. Their distinctions are significant in terms of future regulation and valuation.

What do you think?

Written by Winston Williams

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