More than ten years after the start of the cryptocurrency and blockchain revolution, many new currencies and technologies were launched after the success of Bitcoin, and despite the great growth in this field, especially in recent years, the absence of a single authority or capable body To organize the work of these technologies contributed to the creation of many different and incomprehensible concepts and designations about them.
If you do a short search for cryptocurrency news today, you will notice a lot of terms related to this field, which are often incomprehensible, so that those interested in this field may sometimes find it difficult to differentiate between them, in this article we will talk tokens, digital coins and currencies Virtual Currencies, which are one of the most unclear terms. Follow us to learn the differences between them.
There is no doubt that these three terms do not express the same thing, but at the same time they may refer to similar technologies sometimes, due to the failure of companies and bodies working in this field to agree on a single standard for naming, for example, when the famous bank JPMorgan Chase issued JPM Coin His own, he advertised it as Digital Coin, while Facebook advertised his Libra as a cryptocurrency.
Although there is a difference in design between JPM Coin and Libra, many experts in this field have stated that their classification should not be cryptocurrencies, but rather digital money or digital currencies, and the reason behind this is that the two currencies are regulated from Before large companies with central authority in such a way that the classification of "decentralization" does not apply to these currencies, however, there are currencies called cryptocurrencies despite the fact that they belong to a central authority in some way.
Regarding cryptocurrencies, it can be defined here as a virtual or digital currency that is characterized by strong encryption that makes it impervious to known fraud and hacking operations, as most of these currencies are often based on blockchain technology in a way that makes them decentralized, however, the concept is the first Cryptocurrency goes back to the early 1990s when the electronic payment company Digicash did so, without using blockchain technology.
Many well-known currencies such as Bitcoin, Ethereum, and Ripple share several characteristics that make them categorized as digital and cryptocurrencies, including that each of them is on its own independent blockchain network, but we have to tell you here that the name Bitcoin, Ethereum, and Ripple refers to the blockchain network that these work on. Currencies, while the currencies themselves have close names like BTC for Bitcoin, ETH for Ethereum, and XRP for Ripple.
Digital currencies have some characteristics in common with traditional money, such as the ability to exchange and divide in addition to the ease of dealing with them and the limited quantity available from them, as they are designed mainly to be used instead of money or alongside it for the purchase and sale operations, but nevertheless there are some currencies that It expanded its services to more, such as the ETH coin of the Ethereum network, which is sometimes used to facilitate various transfers.
Tokens can be described as digital assets designed to be used within a specific business environment, system, or project, for example, as the main difference between them and currencies is that they need another blockchain platform to function properly, and Ethereum is the most prominent example of this, with it being a blockchain platform. The most popular for creating tokens, due to the many advantages offered by their smart contract technologies.
ERC-20 tokens are one of the most popular types used on the Ethereum platform, as Tether, which is one of the most popular cryptocurrencies, uses this type on the platform. The primary goal behind tokens differs from cryptocurrencies, except that they can also be used for payments.
Utility tokens: they are usually used with decentralized applications and associated networks, as the main goal of them is to grant their owner access to a specific project or part of it, as is the case with the BAT token, which is one of the ERC-20 types of the Ethereum platform, which is It is mainly used in the digital marketing field.
Security tokens: This type represents someone's investment within a specific project, as it derives its value from the company launching this project, and users usually buy these tokens in order to store them and make profits from them by selling them after the increase in their value.
The difference between virtual and digital currencies
The term digital currency is the broadest and most common, because it refers to all the forms that electronic money may come in, whether they are virtual currencies or cryptocurrencies, as the common denominator between all these forms is that they exist in electronic form only without any financial compensation on the ground. In addition, the process of exchanging it between the parties is often without the presence of intermediaries or third parties to manage and regulate that.
As for virtual currencies, they express something else most of the time, when they are digital money in an unregulated environment that is controlled by the developers who only issued them, and it is used within one environment only as it is not designed for traditional buying and selling operations, the biggest example This type of currency is the money that is bought and used in video games, such as points for FIFA and purchase cards in GTA games, as this money allows you to buy things or obtain certain privileges within the games or open new stages, for example.
With the concept of digital and cryptocurrencies still relatively recent, many governments, financial institutions and companies differ among themselves about how they are classified and regulated, for example, in the United States alone there are about five definitions of cryptocurrencies, which differ among themselves according to the regulatory body that established them. By its definition, as the SEC indicates that they represent financial assets, while the Financial Crime Prevention Network believes that they represent real money.
For some other regions, such as Russia, the head of the central bank there refers to Bitcoin as a currency surrogate, and given these differences, it is important to note that these classifications are subject to change over time, and it is expected that this problem will not end until a single standard is agreed upon. To organize and name these currencies.