Crypto news
27 August, 2021

Cryptocurrencies, Altcoins, Tokens and Forks – What’s the Difference?

Cryptocurrencies, Altcoins, Tokens and Forks – What’s the Difference?

Cryptocurrencies

The crypto world has come a long way since the introduction of Bitcoin – with over 5,000 active cryptocurrencies on the market and more being constantly added. What’s interesting is that the word ‘cryptocurrency’ appears nowhere in the Bitcoin white paper, but early adopters chose to describe bitcoin as a cryptocurrency because it is a digital currency— or ‘electronic cash’, in the words of the white paper— that uses cryptography to facilitate and secure transactions.

Some of the big players, aside from Bitcoin (BTC), also include Ethereum (ETH), Ripple (XRP), Litecoin (LTC), and Tether (USDT).

Even though each currency is different in its function, development and purpose, what unites them is the underlying meaning of a cryptocurrency. Simply, this entails a digital currency that is created and secured by cryptography, the art of writing or solving digital codes. Though cryptocurrencies existed even before the development of Bitcoin, it is important to note that Bitcoin was the first to be completely decentralised and therefore completely changed the crypto space.

Altcoins

As the name suggests, altcoins refer to coins that are an alternative to Bitcoin. So, essentially, every cryptocurrency except for Bitcoin is an altcoin. Some altcoins are a close variant of Bitcoin, sharing the open-sourced nature of Bitcoin, whilst others create their protocol on which to operate. However, all altcoins have a unique blockchain upon which their transactions occur.

There are also stablecoins. Stablecoins are cryptocurrencies that are tied to fiat currency, in most cases the US dollar. As the name implies, stablecoins are supposed to be more ‘stable’, by being linked to a fiat currency that doesn’t change too much in value. So, the worth of stablecoin that is for example linked to the US dollar is always $US1 or as close to one US dollar as possible. The first successful stablecoin is Tether (USDT). Others include Binance USD (BUSD), USD Coin (USDC), and Dai (DAI).

Forks

If you’ve delved into the altcoin space, you would have come across the idea of forks. Forks represent a split in the blockchain and allow for the altcoins to occur.

Specifically, forks can be divided into:

  • Hard Forks – An upgrade in the protocol that cannot work with older versions, including Bitcoin Cash.
  • Soft Forks – An upgrade in the protocol that can still work with older versions, including the Bitcoin Improvement Proposal (BIP).

Tokens

Finally, we have tokens. This is a fairly general term which is impacted by the context in which it is used.

As such, a token can mean:

  • A digital asset – Including a Bitcoin or altcoin token.
  • A unit of value – Including how many Bitcoins a person has, described as X Bitcoin tokens.
  • A string of data – The transfer, storage and creation of cryptocurrencies is done through a string of data known as tokens.
  • A utility token – Allows a user to access a certain product or service.