In this below article, I’ll try to explain few basic concepts and terms in the crypto space in layman terms.
Bitcoin and Ether are two of the better -known cryptocurrencies or coins.
So what are these cryptocurrencies?
Anthony Lewis in his best seller “Bitcoin and Blockchains” explains cryptocurrencies or coins are assets or items of value that exist digitally, not physically, and are created by software.
Unlike the Federal bank in the case of US Dollars, cryptocurrencies have no issuer as such. No person, company or entity backs these, and there are no terms of service or guarantees associated with them. Like physical gold, they simply exist, and are created or destroyed according to the rules articulated in the code that creates and governs them.
Cryptocurrencies have value which is determined within marketplaces called exchanges where buyers and sellers come together to trade at mutually agreed prices. They can be exchanged for other cryptocurrencies or other global sovereign or fiat currencies.
Some digital assets are described as tokens. So whats the difference?
Cryptocurrencies and tokens are both types of cryptographically secured digital assets, sometimes known as cryptoassets. But these tokens have different characteristics from cryptocurrencies and from each other.
Tokens can be fungible or non fungible.
Fungible, funny word isn’t it?
Well, fungible tokens are tokens which are more or less replaceable by another token. Non fungible tokens are the ones that cant be replaced since each tokens represent something unique.
Unlike cryptocurrencies, these newer tokens are usually issued by known issuers who stand behind them, and the tokens can represent legal agreements (like financial assets), physical assets (like gold), or future access to products and services.
Tokens are sometimes called DDRs – Digital Depository Receipts where the underlying item is an agreement, product or service. For eg, there are tokens that represent everything from gold bullion sitting in a vault somewhere, through to tokens representing unique CryptoKitties – collectible digital cats with specific visual attributes determined by their ‘DNA’ code.