Speaking about this new crypto world, one mind will thing of cryptos, tokens, virtual and digital currencies. There are indeed differences between all these terms, big and small. For example, when JPMorgan Chase released JPM Coin, it presented it as a “digital currency”, while Facebook’s Libra was presented as a cryptocurrency, and ironically, this may be one of the reasons why regulators, throughout people, dealt diligently with them.
However, while JPM Coin and Libra are different in design, in both cases decentralisation experts rushed to dismiss them as non-“cryptocurrencies” but “virtual money” or “digital currencies” – mainly because they are owned and operated by companies and are therefore centralised. Unfortunately, it’s not that simple: While decentralisation is a core ideology behind cryptocurrencies, some of them can be “concentrated”, at least to some degree.
Thus, a cryptocurrency is a digital or virtual currency (the details of which will be discussed below in the article), which is built with strong cryptography, making it highly secure and unchanging. Most cryptocurrencies are based on blockchain technology, a distributed book enforced by a decentralised computer network.
However, there are technical possibilities for cryptocurrencies without blockchain. In fact, Digicash, one of the first forms of cryptographic electronic payments released in the early 1990s, did not have a blockchain.
We must also say that there are subcategories within modern blockchain based cryptocurrencies, e.g. NEO is a cryptocurrency, while Binance Coin (BNB) is actually a token. There is some confusion in the field of cryptocurrencies regarding these definitions and we at bestcryptogamblingsites.com will make an effort later on in the article to clarify it.
What is a crypto currency?
Bitcoin (BTC), Monero (XMR) and Ethereum (ETH) are all examples of cryptocurrencies. What do they have in common? Everything is in their own independent calendar: BTC works with the original Bitcoin Blockchain, ETH uses its own Blockchain, XMR is in Monero’s Blockchain and so on. They can also be shipped, received or mined.
As their name suggests, cryptocurrencies tend to have the same characteristics as money: they are interchangeable, divisible, portable and limited in supply. So, normally, cryptocurrencies are meant to be used just like physical money: to pay for the purchase of goods (although the introduction to retail is relatively slow). However, there are exceptions, as Ethereum has all the hallmarks of a cryptocurrency, it works beyond the role of “money” because it is used within Ethereum blockchain to facilitate transactions.
There are also “altcoins”, which earned this title because they are presented as an alternative to Bitcoin, the original cryptocurrency. Many altcoins are a similar to Bitcoin and were developed using the Bitcoin open-source protocol – such as Litecoin (LTC) and Dogecoin (DOGE) – but the aforementioned ETH and XMR are also referred to as altcoins, although they are built with brand new blockchain. Therefore, an altcoin is an encryption currency, which has its own blockchain, but is not Bitcoin, which is the original blockchain.
What is a token?
The primary distinction between tokens and coins is that the former require another platform to operate. Ethereum is the most common platform for creating tokens, mainly due to the possibility of “smart contracts”. The tokens created in the Ethereum blockchain are commonly known as ERC-20 tokens, e.g. the popular Tether (USDT). There are of course other token platforms, such as NEO and Waves. The purpose of the token is also different from that of cryptocurrencies, although they can also be used as a means of payment (so-called “monetary token”).
Many tokens are created for use in decentralised applications (DApps) and their networks. However, these are called “utility tokens”. Their main intention is to give the holder access to the operation of the application e.g., BAT is a distinctive ERC-20 token (i.e. its platform is Ethereum) to enhance digital advertising. Advertisers buy BAT token ads, which are then distributed to publishers and browser users for both ad hosting and display.
In addition, there are “insurance tokens“, which essentially represent an individual’s investment in a project. Although they receive value from the start-up company that implements the project, they do not give their owner a real share of ownership in this company. People buy these tokens solely in the belief that their value will increase in the future. This happened with the initial explosion of the offered token ICO when, unfortunately, people were buying insurance tokens that were disguised as utility tokens. Normally, insurance tokens are subject to strict regulatory control and extensive Know Your Customer (KYC) policies are in place, which is not the case in the ICO market.
What about the differences between virtual and digital currencies?
One might think that these two are synonymous, but the answer is no. One is a much more abstract term, while the other is quite specific, but, in this case, things are simpler than in the case of cryptocurrency and token.
“Digital currency” is a general term used to describe all forms of electronic money – whether it is a virtual currency or a cryptocurrency (without being exactly the same). The very concept of digital currencies was first introduced in 1983 in a research paper by David Chaum, who later implemented it with Digicash.
The characteristics of digital currencies are that they exist only in digital or electronic form and, unlike a real euro account with banknotes or coins, they are intangible. They can only be owned and paid for electronically, through e-wallets or designated connected networks. Normally, there are no intermediaries, so the transactions are instantaneous and with minimal fees. Digital currencies and digital money are the same.
Virtual currencies are a different kind, although they are by definition digital. The European Central Bank first gave the definition in 2012, as follows: “A virtual currency is digital money in a non-regulated environment, issued and controlled by its developers and used as a method of payment between members of a specific virtual currency community”.
Non-encrypted coins are money embedded in video games, such as WoW chips, GTA online cash cards, or FIFA points from the EA Sports branded game. These usually exist within the ecosystem of the respective game and are used to unlock the bonus content.
Thus, unlike regular money or even certain digital currencies, virtual currencies cannot be issued by a central bank or other banking regulator, which explains the volatility to which they are prone. Therefore, cryptocurrencies are completely separate from virtual currencies and should not be confused with each other, both of which fall into the broader category of “digital currencies”.