Are not all digital currencies cryptocurrencies? I don't understand! By Karupanocitizen

Many times we have read in different publications and articles, within the blockchain environment, the use of the terms: digital currencies, tokens, virtual currencies, cryptocurrencies, or crypto assets as synonymous terms, but do they mean the same thing? or are there characteristics that can help us differentiate them?

In this publication we will be learning the elements that characterize and differentiate a token, a digital currency, or a virtual currency, we will also see how we could characterize cryptocurrencies or critical assets, will they be the same? I invite you to learn about these elements together essential within our blockchain environment.

What are digital currencies?

When we speak of something "digital" etymologically, we refer to something associated with "digits" that is to say, what is handled with the fingers, whether they are the hands or the feet, however, the most generalized meaning of this term refers to the representation of things through the universal language of ones and zeros used by computerized programs.

"Digital currency" is a general term used to describe all forms of electronic money, be it virtual currency or cryptocurrency (no, they are not the same either). The very concept of digital currencies was first introduced in 1983 in a research paper by David Chaum, who later implemented it in the form of Digicash.

In this way, we can understand that a digital currency is a representation, within a computational (or virtual) environment, of a means of payment existing in real life or created to be able to carry out financial operations in a digital environment. In other words, fiat currencies can be represented digitally, an example of this is the digital yen, the digital dollar, or more recently the Venezuelan digital bolivar, other countries such as Sweden, Canada, Switzerland, the United Kingdom, Japan, and the European Central Bank are also analyzing the advantages and risks of creating digital money regulated by governments and backed by the currencies of each nation.

Digital currencies can be issued by central banks, that is to say, be centralized and be backed by physical money, so they would only be a representation of it and would be subject to the regulations of each country. This would make them not have the basic attributes of decentralization and self-regulation on which all cryptos are based, therefore, a digital currency is not necessarily a cryptocurrency, however:

I think I'm getting the hang of it!

Tokens are cryptocurrencies! Right? Or not?

Just as a digital currency is a computer representation (so to speak) of a good that can be used as a means of payment, such as bills and coins, a token is a representation of said financial good (whether digital or not) within a particular environment where it is recognized as a valid payment mechanism.

And I thought I was understanding! Now if you messed everything up with me!

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To better understand how a token works, imagine going to a casino, the first thing you do is buy “chips”, they “pay” them with cash or digital money (like when you make a charge to the debit or credit card), those "Tokens" will represent, only in that casino, a valid payment mechanism. If you wanted to go to a restaurant in the city and pay with the chips previously purchased, they would not accept them as a means of payment.

While it is true, the tokens were created as a valid payment mechanism, only for the environment where they originated, such as the Eagle Cash used by the United States Armed Forces (private currency). Many of these instruments, having a general acceptance within the market, end up exceeding their initial potential. The blockchain is a clear example of this, many tokens were created to pay commissions and carry out operations within the environment for which they were created, but being numbered in large exchanges such as Binance, for example, they tend to become payment mechanisms of general acceptance.

And then what are virtual currencies?

Have you ever played World of Warcraft, GTA Online FIFA? What do these games have in common? They all generate points, cash cards, or "in-game" money that is generally used to unlock additional content, such as new items and animations, acquire upgrades for the characters, or for the elements they use within the game.

So we can say that a virtual currency is a digital currency that is only valid within a virtual world or environment (not real), this type of currency is only valid within the fictitious world of a game, a computer program, or a platform digital and unless someone wishes to acquire improvements within the aforementioned environments, they are mostly devoid of commercial value.

Let's clarify then the issue of cryptocurrencies and crypto-assets

As we have already seen, by definition a cryptocurrency is a decentralized digital currency, accepted as a valid payment mechanism within the blockchain environment and which is gaining more and more ground as a store of value and means of payment within financial operations carried out in centralized environments. , conventional or as many say: "in the real world" (as if the blockchain were not real xD)

On the other hand, a crypto asset is any digital good that represents a commercial, economic or financial value within the blockchain environment without necessarily being a cryptocurrency, such as NFTs, some tokens, and even cryptographic elements that can be exchanged.

Although cryptocurrencies are also often known as "tokens", the truth is that a cryptocurrency has its independent ledger, such as BTC that operates on the Bitcoin blockchain, ETH that operates within the Ethereum blockchain, or XMR based on the Monero blockchain, however, the Binance Coin (BNB) is a token created by the famous Exchange.

The main distinction between tokens and cryptocurrencies is that the former requires another blockchain platform (not their own) to function. Ethereum is the most common platform for creating tokens, mainly due to its smart contract function. Tokens created on the Ethereum blockchain are generally known as ERC-20 tokens, such as Tether. On the other hand, tokens are also created for specific purposes to be used by decentralized applications (DApps) and their networks, operating only within that environment, so, to give it a commercial value, they would have to be changed to another token or a cryptocurrency.

I hope this article allows us to clarify a little about the difference between the terms and definitions developed here, I would like to know how clear the differences between the elements developed here were, could you mention examples of tokens and cryptocurrencies? Are cryptocurrencies currencies? digital? the improvements or characters of a game, within the blockchain, could be considered as crypto active? I would like to read you in the comment box.