Given the buzz around DeFi and cryptocurrency trading, even newbies have already heard of Bitcoin, Ethereum and Dogecoin. But did you know that the cryptocurrency sector is growing at an astonishing rate, and there are more than 12,000 cryptocurrencies?
With so many different crypto projects out there, people often use the terms crypto, coin, and token interchangeably. But what is the difference, and what to pick for your portfolio?
Here is all you need to know.
What Are Cryptocurrencies?
Cryptocurrencies are digital currencies that have no physical form. Just like fiat money, cryptos can be used to pay for goods and services or as a store of value.
As we know, the first ever crypto is Bitcoin, which led to the creation of numerous alternative coins or altcoins, such as Ethereum, Litecoin, Ripple, Cardano, and more. Note that altcoins can be divided into different categories, such as stablecoins and privacy coins. For example, stablecoins are cryptos whose value is pegged to another asset in order to provide more stability.
Nowadays, cryptocurrencies are seen as valuable investments that, despite being highly volatile, could bring potentially profitable opportunities.
Are Altcoins and Coins the Same?
Yes and no. Although altcoins are referred to as coins, we should mention that the term altcoins is used to describe all cryptocurrencies except Bitcoin, in other words, assets that followed the launch of BTC in 2009.
Coins, on the other hand, are those cryptos that have their own blockchain, including Bitcoin. For example, the native coin of Bitcoin is BTC, Ethereum is ETH, and Binance is BNB. They can also act as gas or utility tokens.
Without dwelling much into terminology, we should mention that various factors affect the potential of a coin, including technology, development team, and market sentiment. Interestingly, many new coins appear through a type of crowdfunding called ICO (Initial Coin Offering).
Crypto Coins Vs. Crypto Tokens
Crypto coins can be used like traditional currencies: to execute transactions or purchase goods, for example. Crypto tokens, on the other hand, are more like assets. They can represent a physical or digital object or ownership in a DAO (Decentralised Autonomous Organisation).
Note that tokens can also be termed altcoins, but usually, they do not have their own blockchain. Many tokens, for example, are built on the Ethereum blockchain. Tokens can be bought or sold like any other crypto coin. They are different types, such as DeFi tokens, governance tokens, NFTs, utility tokens, payment tokens, and more.
NFTs (non-fungible tokens) are growing in popularity tokens that are associated with a particular asset, either physical or digital. Usually, NFTs are associated with unique items across media, digital content, gaming, art, and more. Ownership can be transferred when an NFT is sold.
In fact, more and more gaming companies are considering integrated blockchain technologies and NFTs to respond to users’ needs. As Dane Scarborough said, “NFTs are birth certificates for the offspring of creators.”
Major Players in the Crypto Field
To help you understand the differences a bit better, here are some examples of major players in the crypto space:
- Bitcoin is the first and most popular cryptocurrency as per market cap, trading volume and market sentiment.
- Ethereum is the largest altcoin that facilitates the development of smart contracts, dApps, and tokens.
- Other popular altcoins are Monero, Tether, Ripple, Cardano, Binance Coin, Solana and Dogecoin (a meme coin), among others – each with its pros and cons.
- When it comes to tokens, an example of a utility token is Basic Attention Token (BAT), of a security token – Science Blockchain (SCI), and of NFTs – Decentraland (MANA), Sandbox (SAND), and Axie Infinity (AXS).
Of course, you should do your own research as the market is enormous. You can also use a trader-broker website to help you get started. The good news is that today’s tech innovations allow you to begin exploring the markets.
What Asset Should I Trade Then?
Many experts believe that cryptos are the best investment of our century. At the same time, many warn beginners to allocate only up to 10% of their portfolios to crypto investments. When it comes to assets to pick, though, it is all up to you.
You should only follow your financial goals and risk management strategies when choosing ways to diversify your portfolio. Do not hesitate to consult a licensed professional to help you explore different options. On top of that, never trade out of fear of missing out or greed. Even a top-performing asset can plummet xxx% in hours, so never invest more than you can lose. Oh, and you don’t have to limit your investments to crypto. From forex to stocks and gold, the financial markets offer diverse opportunities.
Crypto, Coins, Tokens: Conclusion
While you don’t need to dive much into the technicalities and terminologies of cryptocurrency and blockchain technologies before you get started, it is recommended to know the differences between different assets and their use cases. Why? Simply because a lot of knowledge and expertise are needed to keep up to date with the fast crypto market and eventually succeed.
“Bitcoin is absolutely the Wild West of finance, and thank goodness. It represents a whole legion of adventurers and entrepreneurs, of risk takers, inventors, and problem solvers. It is the frontier. Huge amounts of wealth will be created and destroyed as this new landscape is mapped out.” – Erik Voorhees
In the end, whether you decide to invest in Bitcoin, the king of crypto, Ethereum, the queen of smart contracts, or an all-time favorite NFT like CryptoKitties, there is one thing for sure: crypto trading is an exciting venture. Do not forget that the number of Web 3 projects, DEXs, and DeFi initiatives keeps increasing, and cryptos and blockchain technologies can be utilized in sectors far beyond finance. And while you may lose money on the way, we guarantee you’ll definitely enjoy the ride.
Your crypto deserves the best security. Get a Ledger hardware wallet for just $79!