Coins, tokens, and digital assets
Much of the terminology in the crypto realm are used interchangeably, which makes the conversation unclear for newbies. However, there are three types of crypto:
Cryptocurrency/digital assets: This is a catch-all phrase for all of the one-of-a-kind assets that have emerged from the blockchain revolution and make use of cryptography. This category includes both cryptocurrency and crypto tokens.
Cryptocurrency: These crypto assets, often known as cryptocurrencies, are those that are native to blockchains. Thus, bitcoin (BTC) is the native cryptocurrency of the Bitcoin blockchain, whereas ether (ETH) is the native cryptocurrency of the Ethereum blockchain. These coins are used to pay transaction fees as well as to reward miners, or individuals that verify transactions. If you need a place to start tracking the values and news on these cryptocurrencies, start with these OSOM Insights.
Tokens are crypto assets that do not have their own blockchain. Crypto tokens operate on a pre-existing blockchain. Although Ethereum is the most popular blockchain for creating tokens, other blockchains can also do so. For example, Beeple’s work NFT, which sold for a stunning $69 million, was constructed on top of the Ethereum blockchain. This category also includes Decentralized Finance (DeFi) tokens.
Why should you be concerned about cryptocurrency?
Since its inception in 2009, the ecosystem surrounding cryptocurrency and blockchain technology has grown into a billion-dollar industry, with cryptocurrencies having a total market capitalization of more than $1 trillion.
Technology has spurred significant internal and external innovation, requiring financial services providers and other businesses to change their processes to better represent people’s expectations for transacting and interacting online. For example, the speed and low cost of cross-border crypto transactions have prompted many to reconsider the remittance sector and other payment networks, such as Western Union.
One of the purposes of cryptocurrencies, as an open system, is to provide access to financial services tools to many people who are unable to enter the traditional banking system. And the industry promotes self-sovereignty, or the ability for individuals to retain control over their data, whether it be personal information or money.
Still, there are hazards involved in dealing with cryptocurrency and financial systems that aren’t controlled by the government, such as hackers and lost wallet passwords, which cause consumers to be locked out of their accounts and/or lose their money. Keep in mind that these accounts are not FDIC-insured.
Because bitcoin is not controlled by the government, it enables individuals and businesses to avoid laws, prohibitions, and regulatory scrutiny. Early in bitcoin’s history, it was used to transmit donations to Wikileaks after the US government forced the card networks, Visa and Mastercard, to stop processing transactions to the group. Since the Venezuelan government has inflated bolivars to near worthlessness, some Venezuelans have converted bolivars into bitcoin as a means of storing value.