Cryptocurrencies, Altcoins & Tokens Explained
After bitcoin introduced the core idea, an avalanche of projects followed suit. Read on for an explanation of the difference between cryptocurrencies, altcoins and tokens.
Back in 2008 bitcoin introduced the brand new concept of cryptocurrencies to the world. In the early years, bitcoin reigned supreme as people began playing with the very ideas behind the new technology.
Even as people were still learning all the new vocabulary inaugurated by bitcoin, new projects and platforms terms kept sprouting, spurring even more confusion into the mix. So, what is the difference between cryptocurrencies, coins, altcoins, and tokens? To help us understand it, let’s take a look at history.
A quick look at crypto history
It was not until 2011, almost three years later, that the second blockchain-based project was created: Namecoin, which was created as a fork from the bitcoin blockchain, was the first altcoin in the space. It was followed by the likes of Siacoin and Litecoin, and by the end of that year there were around eight new projects around - all of them based on bitcoin.
This trend of forking bitcoin continued up until 2013, when the ecosystem matured enough as to enable innovators to come up with brand new concepts that were no longer bitcoin-based.
While the first iterations of blockchain generally had a narrow and well-defined focus - mostly as currencies or registries -, in 2014 the technology took another leap as a young developer called Vitalik Buterin released something called Ethereum unto the world.
Second generation platforms
Ethereum, the first of what later came to be know as a second-generation blockchain, introduced the concept of Turing-complete computation over the blockchain. In layman’s terms, this basically means the network behaves like one single supercomputer, upon which any type of computation can be performed. Including one of Ethereum’s biggest innovations: smart contracts, self-executing contracts where the terms of the agreement between parties are directly written into code.
This was a big departure from previous cryptocurrencies (as these started being called), for it allowed other blockchain-based projects to be built over the Ethereum blockchain through smart contracts.
While Ethereum has a native token of its own, Ether, it enabled projects deployed over it to create their own currencies, each with their own rules, economic policies and uses. Moreover, these tokens could be traded independently, allowing a myriad projects to add new value to a rich and vibrant economy on top of the underlying network.
Third generation and beyond
As you could have guessed, it didn’t stop there. Ethereum was the precursor to other platforms, such as NEO, which is also known as “China’s Ethereum.”
The latest bunch - sometimes referred to as third-generation blockchains - claims to improve on the flexibility of second-generation platforms with higher transaction rates, scalability and lower fees.
These attempts at scaling and increasing transaction speeds have also led to platforms based on alternative database systems to blockchain, such as IOTA’s and Radix’ DAGs - directed acyclic graphs.
So, cryptocurrencies, coins, altcoins, tokens - what is what, and what is the difference between them?
This being a completely new industry treading uncharted waters, naming conventions are an ongoing process, and the meaning of each term varies depending on who is using it.
However, there already are a few trends taking place, and established players in the crypto space - such as market price aggregator Coinmarketcap - are helping advance a more widely-adopted crypto glossary.
This refers to all digital currencies that use cryptography to secure transactions in a (mostly distributed) network. Cryptocurrencies are a whole new asset category that had its inception with the launch of bitcoin, in early 2009, and has ever since grown to encompass a larger ecosystem.
Over time, this crypto space (sometimes also called cryptosphere or cryptoverse) has evolved into platforms that no longer behave just as currencies - like Ethereum, for example, but the “currency” part of the moniker stuck.
The all-encompassing umbrella short form for all cryptocurrencies that run on their own protocols (e.g. exist in their own blockchains or DAGs). This banner includes for example bitcoin, Bitcoin Cash, Litecoin, Ripple, Lumens and Ethers (Ethereum’s native currency), but not the tokens that exist over a given protocol (like tokens of projects which are built over the Ethereum protocol).
As we have seen, coins can have wildly different technologies, consensus mechanisms, use cases, and monetary policies, so the category explains very little of their characteristics.
Confusingly, some people still refer to all cryptocurrencies as coins, but with bigger players like Coinmarketcap adopting this platform-level distinction, this is increasingly rare in crypto land.
Altcoins - or simply alts, as you sometimes find on crypto forums - is a term coined to refer to all non-bitcoin cryptocurrencies. Everything that came after bitcoin is an altcoin - including Bitcoin Cash (and all other mineral-flavoured Bitcoin forks, suck as Gold, Diamond, Uranium, etc).
As for the rest, altcoins are basically the same as coins, with the only real distinction being that this category excludes bitcoin.
Currently there are 882 coins listed as such on Coinmarketcap, with 881 of them being altcoins, but very few of them have managed to acquire any value.
Although technically speaking all coins are ultimately network tokens (in a broad sense), the term tokens itself has evolved to distinguish those units of account that are not native to their own platforms, but can be independently traded on top of them.
This category includes all tokens from projects built on second- or third-layer protocols such as Ethereum, NEO or NEM.
The overwhelming majority of these are Ethereum ERC-20 tokens (which basically mean they follow a set of standards that improve reliability and compatibility, as agreed upon by the Ethereum community).
However, the ecosystem is diversifying, with NEO, Tron and EOS-based projects getting an increasingly bigger piece of the pie. There are nearly 1200 tokens listed on Coinmarketcap alone, and this number is still growing.
As the space matures, so does the language that describes this new chapter of humanity’s history. While bitcoin is still the undisputed leader, the rise of altcoins is proof that there is appetite for alternatives.
And who knows? Perhaps this is not a zero-sum game as most people seem to believe, and in the future we’ll see countless currencies coexisting in harmony, each trusted by a different user base and fuelled by a myriad different use cases.
Whatever it is that the future holds, it looks increasingly more likely that crypto will play a major part in it.