The Difference in Cryptocurrency, Crypto Tokens and Crypto Commodities
By: Team Innerquest Online
Tags: Crypto, Cryptocurrency, Blockchain, Ethereum, Bitcoin

The world of cryptocurrency is filled with various jargon and insider speak. As a result, words are often used interchangeably without much thought to their meaning. This can become a problem for investors trying to understand the world of cryptocurrency, crypto tokens and crypto commodities.

Cryptocurrency, crypto tokens, and crypto commodities are, perhaps, the most misunderstood three words. All three mean totally different things, and are often interchanged in error. Their difference becomes important within the context of establishing a valuation framework for investing. For example, cryptocurrency valuation is derived from a coin’s success in adhering to the characteristics of money. On the other hand, crypto token valuations depend on a different set of factors, such as protocol adoption and robustness.

The importance of nomenclature and distinction between them was brought to light in a recent Goldman Sachs note, in which Goldman argued that bitcoin should actually be valued as a crypto commodity and not a cryptocurrency. Goldman’s argument has implications for the status of bitcoin futures and their regulation going forward.

Here is an outline on the differences between cryptocurrency, crypto tokens, and crypto commodities.

Cryptocurrency:

Cryptocurrency is the most common and high-profile investment option in the markets today. The term is used to refer to coins that fulfill similar characteristics of standard paper-based money otherwise referred to as FIAT currency. The characteristics are its function as a store of value, unit of account, and fungibility or the ability to be used regardless of its history of transactions.

Examples of cryptocurrencies include bitcoin, Ethereum’s ether, and Ripple’s XRP. Be aware that Ethereum and Ripple refer to the underlying blockchain and not to their cryptocurrency offspring. Typically, frameworks valuing cryptocurrencies take into account factors such as traction for the said coin and its supply schedules. Altcoins and coins are synonyms used to refer to cryptocurrency.

As Blockchains such as Ethereum and Ripple fall under the category of coins due to the fact that they exhibit some of the main properties of cryptocurrency.

Such as:

Fungible: one unit is equal to another.

Divisible: each coin can be divided into smaller units of that coin.

Acceptable: accepted widely and may be redeemed or exchanged.

Limited Supply: the amount of coins to be generated fixed.

Uniform: all denominations are of equal value.

Portable: can be held in wallets and exchanged.

Durable: can be used over and over again, a variety of times.

As cryptocurrencies continue to evolve and to scale, unique opportunities exist for both short-term traders and long-term investors.

A coin like Bitcoin is made by making variations in the original Bitcoin code. Much like Litecoin, Namecoin, etc., these can also be called coins. These are often called “altcoins” because they are an alternative to Bitcoin, however strive to have a use case similar to that of Bitcoin.

There are some cryptocurrencies; like Monero (XMR) that were not created on Bitcoin’s code yet are still referred to as coins because they have their own blockchain and have similar properties to bitcoin-based coins.

Cryptocurrency and coins are the main category or parent category with everything else being subsets or sub categories.

Crypto Tokens:

Crypto tokens are similar to cryptocurrencies in that they are built on blockchains. Cryptocurrencies are the most common form of tokens. But crypto tokens are broader representations of a blockchain’s value. That value is manifested across a diverse range, from cryptocurrencies to loyalty points, to even assets built on the blockchain. Ethereum is the underlying blockchain for several tokens that are using its platform to develop services and products. For example, Tronix (TRX) is a token for the entertainment industry. EOS is a token for the infrastructure required to power decentralized applications.

A token is a kind of cryptocurrency without a use case. It’s usually issued on top of another blockchain. Tokens generally represent a utility, an asset or sometimes both.

A token is a secondary asset for a particular application on a blockchain and not the primary use case like Bitcoin or other coins. The token has a market value but not as straightforward as a coin.

Crypto commodities:

There is some debate as to what crypto commodities are comprised of. Some consider blockchains used for generating tokens as crypto commodities. Others have defined crypto commodities in terms of a computer system’s characteristics, such as CPU power. In both instances, however, crypto commodities are defined as the building blocks for cryptocurrencies.

Their relationship to actual coins can be made clearer with the help of an example.

Oil is considered a commodity in the physical world. There is a certain cost associated with extracting it from the earth and it is used to power global economy. Crypto commodities work in a similar fashion. There is a cost associated with generating them and they are used to power the cryptocurrency economy.

For example, computer power (or the speed and number of processors deployed to generate cryptos) and storage capacity of a system are considered crypto commodities. This is an example of the latter type of crypto commodity outlined earlier. An example of the former 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.

The Bottom Line

While they are used interchangeably in news articles and interviews cryptocurrencies, crypto tokens, and crypto commodities are entirely different entities. Even though they may, in fact, share similarities it’s their differences that are important within the context of future regulation and valuation.

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