5. Cryptos vs Tokens
Updated: Jul 4, 2021
If a crypto is a coin that maintains a blockchain, then a token maintains a computer program that gets run on said blockchain. You can think of it as the currency for an arcade as an example. If you go to an arcade and want to play all the games, you buy literal tokens which can then be used in the arcade. Similarly, a computer program called a Decentralized Application or DApp creates a micro economy in which you buy the tokens necessary to use the application.
Since tokens are associated with a specific blockchain (Ethereum being the largest to support tokens), those that run on the same network often have very similar properties allowing for cross compatibility. To learn more about the actual technicalities of this, check out this article by Gemini.
If we look at the DApps mentioned in the last post, The Multiverse of Cryptos, we can understand how cross compatibility is beneficial. Graph is a program that can query an entire blockchain similar to how Google queries the internet. With this program, you could find a platform like Compound that allows you to borrow against crypto assets (including other tokens). If you don't borrow against your posted asset, you will receive interest on said asset from someone else that is borrowing from you. Then, the earnings can be converted into any crypto or fiat currency like the USD or the YEN in seconds by using the Stellar token (even in amounts upwards of a few million dollars) which eliminates the high fees and long wait times associated with wire transfers.
While cryptos and tokens have different methods for self-maintenance, they both have the ability to evolve over time. Cryptos will split in two when there is a hard fork while tokens will update their code through governance votes made by token holders. For further explanation, check out my next article Forking and Governance.