(This post is a reproduction of an article on my blog - https://incryptt.wordpress.com/. The full original article can be seen here.)
Ever since Bitcoin became a buzzword, the world of cryptocurrencies has seen a major upheaval with a large number of similar "coins" have come into being. However, not much is known about true characteristics of these so-called "coins". Sometime they are called Coins and on other times, - tokens or interchangeably at times, both.
Crypto enthusiasts have come across these terms and also used them commonly to explain their interests or investments. However, this is fraught with obvious errors in the manner they view them. Let us understand these coins or tokens better.
The cryptocurrency world uses the word “token” as a general term. In the cryptocurrency paradigm, we divide tokens into two types:
- Intrinsic Tokens, and
- Asset-backed or Project-backed tokens
An Intrinsic token or Coin is also called native token or built-in token. These tokens have been designed to be obtained from within a system using technology. The value of this token is derived only by using them or as decided by the market which trades them. They in fact, do not have an intrinsic value whatsoever!
An Asset-Backed or Project-Backed Token is a digital equivalent of a share of a company. It is said to bear the intrinsic value of a valuable asset which supports its creation e.g. gold, a company or a project. These tokens are created to collect funds for a project which has a cryptocurrency element in it. These tokens are put up for sale in a generic offering akin to an IPO. Here it is called an ICO - an Initial Coin Offering.
Even the Market refers to these type of tokens as Coin or Token as depicted on Coinmarketcap.com. The following snapshot helps us understand this better.
For more Read Here: Tokenization of Cryptocurrencies – Intrinsic vs Asset-Backed tokens