Editor’s note: This series of “ELI5” articles is for beginners who are entering the world of cryptocurrency, DeFi, NFTs and Web3 with many questions in mind. ELI5 refers to the famous English acronym which means “Explain to me as if I were five years old”. The goal is not to make the reader a child, but to give him the key to understanding so that the complex vocabulary of the cryptosphere in the broadest sense becomes, as it were, a child’s play by magic!
The Cryptocurrency A term that has recently become very popular. However, it is not always easy for a neophyte to understand what it is. The general public often associates Bitcoin with the term cryptocurrency, but this is usually the only thing they know.
In this post, we will try to explain to you as simply as possible what a cryptocurrency is. This will allow you to better understand this particular universe.
Crypto, digital resources, virtual currencies, etc. Kejako?
When you consult specific sites, you will notice that the term cryptocurrency is not the only one used. In reality, it is possible to use different names to talk about the same thing.
Depending on the sources you go to consult, you will learn about crypto-assets (sometimes without dashes), digital currencies, crypto, virtual currencies, digital assets, virtual currencies, and many other terms that are often used to talk about cryptocurrencies. Can hear.
Even if all of these terms are not necessarily the exact synonyms and some are not the most appropriate, they will still be used by many authors. So you have to learn to deal with this situation.
Can we consider crypto as real currency?
In reality, cryptocurrencies do not actually have the characteristics of a traditional currency. Simply put, the biggest criticism of this new asset class is its high volatility. It is not uncommon for a single value of a crypto-asset to be multiplied or divided by 2 in a few days.
For this reason, many people in the industry prefer to use a title that does not refer to the word “currency.” This avoids creating confusion and is opposed by critics of this new asset class because of this reference.
However, some people think that crypto can be used as a currency. For example, it is possible to receive your salary in Bitcoin, transfer money in crypto form to friends, or pay for certain services with digital assets.
What is the difference between a coin and a token?
When you read, you will undoubtedly notice that we sometimes speak of coins or tokens to determine a cryptocurrency. Even if it doesn’t change anything when you invest, it’s interesting to understand the fundamental differences between these two types of cryptocurrencies.
To put it simply, a currency is a cryptocurrency that has its own blockchain. It is possible to create new coins through a mining process or other kind of consensus. A token, on the other hand, uses blockchains from other cryptocurrencies to work, such as the Etherium network and the ERC-20 token. All tokens are usually issued as soon as they are made, although sometimes some are not immediately circulated.
Yet, most specialized sites regularly make the mistake of confusing these two terms. Thus, they often use coins and tokens as two synonyms. So you need to be aware of this while reading.
What are security tokens and utility tokens?
Different tokens can be classified into two main categories. Which are called “security” and which are called “utility”. We use the term token, but it also categorizes coins in this category, such as bitcoin or etherium.
Again, to make things easier, a utility token is a cryptocurrency that has at least one utility. For example, it could be a token that discounts exchange transaction fees or allows access to additional services.
A security token, on the other hand, must be considered a financial security, as would be a share for example. Whatever it is, the American stock market police, the SEC sees it that way. In addition, whether a cryptocurrency is a security or a utility can vary by country. For example, the United States may decide that a cryptocurrency is a security, while France may consider it a utility.
The term cryptocurrency refers to projects developed in the blockchain universe. Typically, you can find a list of different cryptocurrencies on the sites CoinMarketCap Where CoinGecko.
Strictly speaking, we cannot talk about money if we rely on traditional definitions. Instead, we should rather classify cryptocurrencies as a new class of assets that are accepted little by little by economic circles.
Cryptocurrencies can be a currency type or a token type depending on their technical characteristics. Also, each digital asset can be considered a utility or security, even if sometimes countries have separate legal qualifications for a given cryptocurrency.
Discover more crypto vocabulary terms
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