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What is the difference between a digital currency and a token?

by BlockchainX about a month ago in tokens
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ERC20 Development

Digital currency and token: how are they different?

In simple terms; A crypto currency uses its own blockchain to keep track of all data, while a token uses another platform’s blockchain as its infrastructure. This means that when a person creates a token they don’t have to create the blockchain, write the code or even worry about how it has to be validated, but simply create the token and it runs on that chain of blocks. With this in mind, a team of developers can migrate from being a token to a coin if they decide their project is growing fast enough, but they can’t directly convert a token to a coin. Instead, they create acurrency that works in the same way as a token and then create a bridge that allows users to exchange their old tokens for the new currencies. Another feature worth explaining is that some coins are represented as tokens on other networks. How? You can think of this as buying a gold stock: you own the stock but all it does is represent gold and at any time you can withdraw that stock for a gold piece, so it’s basically gold (at least For commercial purposes).

The best example of this would be Ethereum : Ethereum has its own blockchain where it stores value and validates transactions. His team has been working for the last few years to improve the entire system by updating its operation and fixing certain vulnerabilities, such as the trilemma of its decentralization , scalability , and security . For example, the native Ethereum token known as ERC20 token generator uses the skills and capabilities of the Ethereum blockchain for its foundation and infrastructure, and a basic attention token is an ERC20 token embedded in the Ethereum network.

The team that developed it decided that it wasn’t big enough to create its own mainframe , but they wanted to create a system where users could reward creators they followed in an easy way. This is how the Brave browser was born , a web browser that automatically replaces the ads on a web page with ads that reward the creator with the Brave token. By creating a token, the Brave team can rely on the Ethereum network to provide security and stability while they focus on their own product.

What is a token used for?

There are different types of tokens that are used for a specific purpose . The best known are:

Platform tokens — These are created to support a decentralized application (dApp) on a blockchain. For example, UNI Swap is a decentralized application that allows users to exchange Ethereum tokens for other Ethereum tokens, and even though they are a decentralized application, they also have their own token, the UNI Swap token. create erc20 token This token is given to those users who invest in your platform, giving them in return the privilege to vote on changes to the platform in the future.

if you want to buy gold but you don’t want to have the physical gold, someone can create a token that has the value of the gold, instead of owning the gold you have a representation of it.

Transactional tokens : are used as a quick and easy way to transfer silver. For example, Tether (USDT) is pegged to the US dollar and has global acceptance, making it easy to use.

Utility tokens : A utility token is a cryptographic token that serves within a particular ecosystem and allows users to perform some type of action on a certain network, such as providing you with a product or a service or a voice in said network through, for example, a vote.

Governance tokens : These types of tokens allow token holders to vote on certain things. For example, in a UNI exchange a user who has the native tokens of the network can, for example,erc20 token creator vote to increase the fee of an operation within it, and everyone who has a token can vote for that change. In this case, the one with the most tokens has more voting power, that is , by having more tokens, one can control the platform more.

What is a digital currency used for?

As we saw before, a digital currency is an asset that has its own native blockchain like Bitcoin , Ether, Litecoin, etc. Each of these coins has its own unique blockchain, so you cannot send Ether on the Bitcoin network and Bitcoin on the Ethereum network. There are some crypto currencies that are used in the same way that we use physical currencies. Let’s take the case of Bitcoin and Litecoin coins: these have the same purpose as the coins in your wallet or even in your bank, but they are used strictly for value exchange , they have no other purpose outside of that.

Some currencies like Ether have additional features beyond just being a form of payment: the Ethereum blockchain was the first to introduce smart contracts , pieces of computer code that are automatically executed when certain predefined conditions are met and that allow developers create what are known as decentralized applications (dApps). Typically, even though a dApp comes with its own token that is used to activate features within the decentralized app , the native currency of that blockchain is still needed to power the transaction . real. For example, the Ethereum token development blockchain has a dApp written in Solidity that can be deployed on it called “Augur” . It has its own token called Reputation (REP) which is needed to perform functions within Augur, however Ether is also needed to perform actions on the Ethereum blockchain.

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BlockchainX

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