Today we’ll be covering
*What is Cryptocurrency
* Difference between a coin and a token
* Types of token
a. Fungible tokens (different categories)
b. Nonfungible tokens (different categories)
Let's dive in
1. What is Cryptocurrency:
Cryptocurrency which is also known as Crypto is a digital asset with multiple use cases. It's primarily a way of transfer of value between people. The way Crypto differs from digital payment is its root in blockchain technology, which gives cryptocurrency more freedom than central entities like banks.
Bitcoin is the first example of this kind of currency
2. Difference between a coin and a token
A coin has its native blockchain that has control over the entire network. E.g $Bitcoin(Satoshi), $ETH(gwei) used for payment of transaction fees
A token is built on already pre-existing blockchains, although they can be used for payment as well.
3. Types of tokens
* Fungible tokens
* Non-fungible tokens
- For a better understanding, let’s take a look at the economic definition of fungible and nonfungible assets.
- Fungible: an asset is considered fungible when it can be interchanged with another asset or goods for the same value.
Examples of fungible assets:
- currencies: any two $10 bills hold the same value, even if they hold different serial numbers, in value, they are the same.
- Gold: any two ounces of gold are considered the same everywhere
- Financial assets like commodities, shares, and options are fungible
So, fungible tokens on the blockchain are a representation of the above idea
Examples of blockchain fungible tokens:
- Exchange tokens: these are tokens issued by crypto exchanges like $Binance,
- Defi tokens: these are tokens native to #decentralized applications. Developers issues defi tokens on the underlying blockchain of their application, which are ERC-20 tokens.
-Meme tokens: these are projects that derive their value from hype.
- Governance token: This set of tokens lets holders vote on the future of web 3 projects.
Non- Fungible
Non Fungible asset has something that makes them unique and cannot be changed for another asset for the same value.
For instance, if you lend your friend your car, he cannot return a different car, even if the maker model is the same as yours. Cars have unique qualities that affect their value.
While "car" is nonfungible, "gas" is fungible, and your friend can fill the tank anywhere.
Also, while "gold" is fungible, "diamond" is not. Diamond has different properties (color, size, grade, etc).
This makes them impossible to interchange two diamonds for the same value.
"Non- Fungible tokens" NFTs represent this idea on the blockchain. NFTs derive their value from an asset or goods they represent. They are also unique and can be transferred to others.
Examples of NFTs
- $Art
- $Collectibles
- Domain names ($Ethereum name service)
- Music
- Photographs
