The crypto space is becoming more and more crowded each day. More and more people are looking to invest their money into something; but, with so many options it gets difficult to decide on what exactly to invest in.
When talking about cryptocurrency, things get even more complicated because of the sheer number of possibilities.
There are more than 1,500 different types of coins that exist currently with hundreds coming out each month. You can always find the new cryptocurrencies on the Immediate Edge app.
For newcomers, this is very hard to understand because on the surface it looks like they’re all doing the same thing; but, if you look under the hood at what powers them, things get pretty complicated, especially when you start talking about crypto terms.
The Difference Between Crypto Coins and Tokens
When it comes to cryptocurrencies, the two most important features are how they scale (for example do they use Proof of Work or Proof of Stake) and what type of consensus mechanism powers them (i.e.: is the blockchain forked or does it use Delegated Proof of Stake).
What is a Coin?
A crypto coin is a currency that has its own blockchain and follows the same rules for consensus. Bitcoin, Litecoin, ZCash are all good examples of cryptocurrencies that follow this definition. The biggest distinguishing factor between coins is how they scale.
Most of the bigger coins operate on a Proof of Work consensus mechanism. That means they use a mining process to secure the blockchain and validate transactions. Bitcoin, Litecoin, and Ethereum all use this method.
What is a Token?
A token represents something else in the real world – it could represent an asset, utility, or any number of things. Tokens are created by crypto coins. A token doesn’t have its own blockchain, instead, it runs on the blockchain of another cryptocurrency (most of the time on Ethereum).
For example, if you create a token on Ethereum it will use the same rules for consensus as Ether; more specifically it will follow Proof of Work or in some cases Proof of Stake. The major difference between these two models is how the tokens are created.
In Bitcoin, Litecoin, and Ethereum Proof of Work consensus mechanism mining new coins requires a lot of processing power because you have to solve complicated algorithms.
On the other hand with the Proof of Stake model all you need is enough money to buy a certain amount of coins and then leave your computer on. That will guarantee you get your reward (in the form of transaction fees) because of your stake in the cryptocurrency.
How to Invest in Crypto Tokens?
The first thing to understand when it comes to crypto tokens is that they are not the same as crypto coins like Ethereum or Bitcoin. That means you can’t just go on a platform, buy Ether or Bitcoin and then send it to an exchange that supports tokens because those exchanges only support certain coins.
If you want to invest in different types of tokens you have to sign up on the different exchanges that support them. One of the downsides of this process is that some of these exchanges have been hacked in the past, so make sure you only use secure websites.
The most important thing to note here is that is how to choose NFT domain, unlike coins where one token equals one unit of a certain coin.
Final Thoughts
When investing in cryptography, you have to know that prices are very volatile. You can make a lot of money, but you can also lose it all if you don’t invest properly.
It’s important to remember there are many different cryptocurrencies out there and they’re not all the same.
