What is the difference between token, cryptocurrency, crypto asset, digital currency, and virtual currency?

Is there a difference between a token, cryptocurrency, crypto asset, digital currency, and virtual currencies? The answer is easy and blunt: yes, there are differences. Although in everyday language they are used as synonyms, they are not the same and there is often confusion with these terms and their definitions.

For this reason, we are going to clarify the issue and we will now explain what each of these terms means, what they cover, what they do not cover, and we will also look at some examples.

By way of example, when Facebook unveiled its Libra project, it was announced as a "cryptocurrency", which is why regulators and cryptosystem referents shouted out loud, and immediately, experts quickly discarded that definition. The reason? libra is and will be virtual money or digital currency since its administrators are corporations and therefore it is a centralized currency and not decentralized as it is supposed to be.

However, the issue is not that simple. Although decentralization is the main ideology behind cryptocurrencies, some of them can be centralized, at least to some degree. Therefore, if we look for a definition, we can say that cryptocurrencies are virtual or digital currencies that are built on a solid "cryptographic" base that makes them secure and immutable, being so, most cryptocurrencies are based on blockchain technology.

To further complicate matters, there are also subcategories within conventional and modern (blockchain-based) cryptocurrencies, for example, NEO, is a cryptocurrency, while Binance Coin (BNB) is a token although many do not notice the difference.

What is a cryptocurrency?

The simple answer would be that they are digital currencies, native to their own blockchain.

Bitcoin (BTC) and Ether (ETH) are examples of cryptocurrencies. What do they have in common? They all exist on their own independent ledgers.

BTC operates on the original Bitcoin blockchain, ETH is used within the Ethereum blockchain, XMR exists on the Monero blockchain, and so on. All these cryptocurrencies also have the characteristic that they can be sent, received, and/or mined.

As their name suggests, cryptocurrencies tend to have the same characteristics as money: they are fungible, divisible, portable, and have a limited supply. Typically, therefore, cryptocurrencies are intended to be used like physical cash, meaning they serve to pay for goods and services (although retail adoption is still slow) or as a store of value and savings.

However, there are exceptions: while Ether has all the attributes of a currency, it functions beyond its "money" function because it is used within the Ethereum blockchain to facilitate transactions.

There are also the "altcoins", so-called because they represent an ALTternative to BitCOIN which is so far, the main cryptocurrency.

Many altcoins are a fork of Bitcoin and were developed using Bitcoin's open-source protocol, such as Litecoin (LTC) and Dogecoin (DOGE), but the aforementioned ETH and XMR are also known as altcoins, despite being built on entirely new blockchains.

So how do we identify an altcoin? The answer is simple. We must ask ourselves if that cryptocurrency is based on its blockchain. If it is, then we should call it an altcoin.

What is a crypto asset?

Many times people tend to limit or associate the term Cryptoasset to a cryptocurrency, but this is a mistake. A crypto asset is a broad concept that includes cryptocurrencies, among others.

A digital asset is that which exists only in binary form and which gives certain rights to its holder. This is because it is possible to use, enjoy and dispose of such assets.

Then, within the Cryptoassets, there is a variety of elements that differentiate them from each other, even in the case of cryptocurrencies.

Each Cryptoasset is different from another and can provide future value, security, and even anonymity. That is why they are different from each other.

Types of Cryptoassets

According to their use, Cryptoassets can be classified as follows:

Cryptocurrencies: The units of value using which payments or any commercial operation can be made.

Commodities or futures: Those designed as a means of investment and to obtain future profits.

Tokens: Those generated by private companies to launch projects and raise capital funds.

Given the widespread growth and acceptance that different crypto assets have been experiencing, new formats will continue to appear every day.

It is even becoming common to talk about digital governance as an evolution of e-government, based on cryptography and blockchain.

What is a token?

Tokens are digital assets that can be used within the ecosystem of a given project.

The main distinction between tokens and cryptocurrencies is that tokens require another (not their own) blockchain platform to function. Ethereum is the most common platform for creating tokens, mainly due to its smart contract function. Tokens created on the Ethereum blockchain are generally referred to as ERC-20 tokens, such as, for example, Tether.

The purpose of tokens is different from that of cryptocurrencies, although they can also be used as a means of payment.

Many tokens are created for use within decentralized applications (DApps) and their networks. These are called "utility tokens". Their primary intent is to grant the holder access to the project, as with the BAT (Basic Attention Token).

The BAT is an ERC-20 token (meaning its blockchain platform is Ethereum) made to enhance digital advertising. Advertisers buy ads with BAT tokens, which are then distributed between publishers and browser users as compensation for hosting ads and display, respectively, which is pretty much what the famous Brave browser does.

Virtual currency and digital currency, are they synonyms?

Virtual and digital currencies are not synonymous.

The term "digital currency" is used to describe all existing forms of electronic money, whether virtual currencies or cryptocurrencies. The very concept of digital currencies was first introduced in 1983 in a research paper by David Chaum, who later implemented it in the form of Digicash.

The main defining characteristic of digital currencies is that they exist only in digital or electronic form and, unlike physical bills of fiat currencies such as a one-dollar bill, one euro coin, etc., they are intangible. They can only be owned and spent online through electronic wallets or connected networks designated for that purpose.

Normally, there are no intermediaries (no banks) handling these currencies, so transactions are instantaneous and in most cases, little or no fees apply. In short, digital currencies and digital money are the same.

Specifically: cryptocurrencies, tokens, and virtual currencies are all digital currencies. As for virtual currencies, even though they are digital by definition, they are a different thing.

The European Central Bank first defined the term in 2012: a virtual currency is "digital money in an unregulated environment, issued and controlled by its developers and used as a method of payment between members of a specific virtual community."

An excellent example of virtual currencies that are not crypto-based would be the money embedded in video games, such as tokens in World of Warcraft, cash cards in GTA Online, or FIFA points in EA Sports' eponymous game.

This money usually exists within the respective game ecosystem and is used, for example, to unlock additional content such as new items and animations but other than that, it has no other kind of use or application.

Unlike ordinary money or even specific digital currencies, virtual currencies are not issued by a Central Bank or other banking regulatory authority, which explains the volatility to which they are prone.

On the other hand, cryptocurrencies are completely separate from virtual currencies and their meaning should not be confused, even though both terms fit within the category of "digital currencies".

Final Words

Cryptocurrencies, as we know them, have been around for less than 15 years, while most government agencies started paying attention to them only a couple of years ago when Bitcoin's popularity started to increase along with its value.

As it is, definitions of cryptocurrencies tend to vary between or even within jurisdictions. In the United States alone, five different regulatory agencies define cryptocurrencies in five different ways, depending on their scope.

The IRS considers cryptocurrencies and most other virtual currencies to be property, the Securities and Exchange Commission believes they represent securities, while the Financial Crimes Enforcement Network believes cryptocurrencies are simply "money."

In Japan, the regulatory framework for cryptocurrencies defines them as a property value, and the head of Russia's central bank once called Bitcoin a "substitute for traditional currency".

Having made this clarification, it is also important to say that new terms and definitions for digital currencies will presumably appear in the future, which makes it especially important to keep up with current denominations.

Are you agree with this information, do you have any other definitions to contribute? If so, feel free to leave your opinion in the comment box.