Mainstream Media Misconceptions About Cryptocurrencies- What Are The Facts?
By: Sal Miah
Tags: Blokchain, Crypto, Media, Bitcoin, Aelf

Understanding Cryptocurrency

Two of the most common misconceptions about cryptocurrencies is that cryptocurrencies are here to replace fiat and that cryptocurrencies are all the same, which is not the case. A closer analysis of cryptocurrencies reveals, in detail, the differences that exist between the two forms of cryptocurrencies and the purposes they serve.

The basic definition of cryptocurrencies from various sources is ‘a digital medium of exchange that uses cryptography to secure financial transactions, verify transactions and create new units of the currency.’ The majority of cryptocurrencies are created at conception.. A cryptographic signature is created, unique to every cryptocurrency transaction, proving the authenticity of the cryptocurrency.

Cryptocurrencies fall into two major groups; coins and tokens.

Coins

Coins are used for financial exchange and are the cryptocurrency launched during ICOs (hence the term Initial Coin Offering). Coins include cryptocurrencies such as Bitcoin which is solely meant for financial transaction; hence its mention as an alternative mode of payment in several physical and online stores.

Tokens

The other types of cryptocurrencies are tokens. Tokens represent a form of utility, asset or even both and are generally issued in blockchains where a currency use case is not likely. Tokens have market value but are not considered as coins. They are like secondary assets in a blockchain ecosystem which can be traded.

Tokens are sometimes mistaken for shares by some investors. Although they have striking similarities, tokens and shares are fundamentally different. Shares represent the part ownership of a company whereas tokens are a medium of exchange for products, resources and services offered within their platform of origin. Understanding the difference between these two assets will help investors make informed choices.

From the explanation on the types of cryptocurrencies, it is clear that only coins can be used in the place of fiat currencies. Cryptocurrencies like Bitcoin and Ethereum can be used to make purchases across institutions that accept them. They can also be used as a store of wealth as seen in fiat currencies such as the US dollar. This, however, does not mean that they can replace fiat currency as their value is usually pegged to fiat currencies, mostly the US dollar.

Tokens, on the other hand, are meant for in-house purchases. Tokens can be used as mediums of exchange in their own blockchain platforms, as currently seen via the thousands of listed cryptocurrencies. The tokens can be listed in cryptocurrency exchanges where they can also be used as a store of value depending on the transactional boundaries the token has.

Both tokens and coins are run by the distributed ledger technology (which will also be discussed), blockchain. Coins and tokens are both stored in crypto wallets which hold the cryptocurrency. Digital wallets hold public and private keys with the private keys allowing you to transfer the cryptocurrency stored while the public keys enable reception of cryptocurrency from other users.

The explanation above demystifies the error that is all cryptocurrencies are like bitcoin and that they were invented to replace traditional fiat currencies. We have seen that each category of cryptocurrency has its unique purpose based on its platform of origin.