Cryptocurrencies and tokens are often used interchangeably, but they have distinct differences:

Cryptocurrencies:

  • Independent: They have their own blockchain and are not tied to any specific project or platform.
  • Decentralized: They operate independently and are not controlled by a central authority.
  • Function as a medium of exchange: They can be used to buy goods and services directly.
  • Examples: Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC)

Tokens:

  • Built on top of another blockchain: They are issued on an existing blockchain, such as Ethereum, and are not a standalone blockchain.
  • Dependent on the parent blockchain: They are subject to the rules and regulations of the parent blockchain.
  • Function as a representation of value: They can represent a specific asset, utility, or service, but are not a medium of exchange in themselves.
  • Examples: ERC-20 tokens on the Ethereum blockchain, such as DAI (DAI) or LINK (LNK)

Key differences:

  • Independence: Cryptocurrencies have their own blockchain, while tokens rely on an existing blockchain.
  • Decentralization: Cryptocurrencies are decentralized, while tokens are subject to the rules and regulations of the parent blockchain.
  • Functionality: Cryptocurrencies can be used as a medium of exchange, while tokens typically represent a specific asset or utility.

Think of it like a house:

  • Cryptocurrency is like a stand-alone house with its own foundation, walls, and roof.
  • Token is like a condominium unit within a larger building (the parent blockchain), with shared resources and rules.