Cryptocurrencies appeared relatively recently, but in just a few years they managed to gain popularity around the world. At the moment, the capitalization of the top 10 cryptocurrencies is estimated at tens of billions of dollars, so every day more and more people seek to enter this industry.
The easiest way to join the crypto world is to buy tokens. But in order to do it correctly and, most importantly, profitably, you need to understand what a token (cryptocurrency) is and how the whole system works. Otherwise, there is a very big risk of just losing money. Before talking about how a token differs from a cryptocurrency, a description of the history of its emergence is worth discussing, since without it it will be difficult to understand the place of this technology in the modern world.
A bit about the history of cryptocurrencies
The main mechanism on which all cryptocurrencies work in the world is the blockchain. This is an innovative invention, the idea of which appeared in the minds of the best developers in the world back in the nineties, but it was only in 2009 that they managed to implement it efficiently and effectively.
First successful implementation of technologyblockchain is the merit of a Japanese developer named Satoshi Nakamoto. In fact, the identity of this person is unknown, and most people in the crypto world are inclined to believe that this is not a single developer, but a pseudonym under which a group of professional programmers is hiding.
Be that as it may, in 2009 Satoshi Nakamoto launched the first decentralized anonymous transaction platform, which was called "Bitcoin".
How does Bitcoin work?
The essence of this system is that all transactions inside it are recorded in a large chain of blocks, which is called the blockchain. Each network user stores this chain on his computer and has access to information about all transactions. Thus, the reliability of transfers and the security of the system are simultaneously monitored by millions of computers around the world. This ensures the highest level of reliability.
Anonymity in the network is achieved due to the fact that no one can find out who is the owner of this or that account. To register a wallet, no personal data is required, as in a bank. Everything is completely anonymous.
However, the question arises, how can users make transactions if their money is controlled by banks and electronic payment systems? Now we can talk about what a token (cryptocurrency) is and what is its role in this system.
What are tokens for?
In the Bitcoin network, as in other cryptocurrencies, fortransfers, we do not use the usual money - dollars, rubles or euros, but the internal currency. It is she who is called tokens.
Due to tokens, the cryptocurrency system acquires absolute independence from the authorities, local legislation and any other regulatory bodies. No one can issue tokens except the system itself. They are inside it and cannot be brought out into the material world. Tokens are paid only within the network.
What is the value of tokens?
Speaking about what a token (cryptocurrency) is, first of all it should be noted that tokens are absolutely not backed by anything in any cryptocurrency. This means that they are only valuable when someone is willing to buy them. But who will need them if they cost nothing?
The value of a token is determined by the demand for it in the market, and the demand, in turn, depends on the capabilities of the network. Thus, the most technically advanced and most popular network has the most expensive tokens.
Cryptocurrency has a huge number of applications, the number of blockchain-based startups is increasing exponentially every day. If the system becomes in demand, the price of tokens (cryptocurrency) rises, the rate begins to increase. Therein lies their value.
As an illustrative example, we can consider the rate of tokens of the second most popular cryptocurrency system today - Ethereum. Until 2016, this system was used primarily for domestic financial transactions. The price of the token was inaround $10 and didn't get much higher than that.
In 2016, the network was hard forked. She has become much more perfect. Now Ethereum has been used to conclude smart contracts, conduct crowdfunding campaigns, organize blockchain startups, and much more. Thus, the network has become in demand, and tokens are needed to work with it. It is not difficult to guess that after that the price of the token soared dozens of times. Today it is about $300.
Conditions for obtaining tokens
Now that it has become clear what a token (cryptocurrency) is, we can talk about how to get them. As already mentioned, the easiest way to get tokens is to buy them on an exchange or through an exchanger. However, the conditions for such a purchase will not always be favorable, especially when it comes to the most popular cryptocurrencies. You have to be very careful with this, analyze the growth chart, the situation on the market. Today it is a big business in which a beginner without special knowledge is unlikely to earn anything.
However, there are other ways to get tokens. One of the most popular is mining. The essence of mining is that a person directs the power of his computer to maintain the network. Since the cryptocurrency system is decentralized, its functioning is ensured by the work of millions of computers around the world.
Miners create blocks of transactions and include them in the chain. Only after being included in the chain, the transaction is considered committed. It is not so easy to carry out this operation, since for this it is necessary to solve cryptographic algorithms of incredible complexity. A regular PC will not cope with this, as it simply does not have enough performance. For the mining of tokens, huge “farms” are created, on which the most powerful equipment operates. For creating a block, the network rewards the miner with tokens. This is how they are mined.
ICO
Many professional developers are thinking about how to create their own cryptocurrency token. If they succeed, the new cryptocurrency begins to develop, but it does not yet have a large number of investors. Nevertheless, developers need money, because without it, creating a large system will not work. In order to raise a certain amount of funds to start the development of a new cryptocurrency, the developers conduct an ICO (Initial coin offering), which means "initial placement of tokens" in Russian.
This means that the developers make a presentation in which they show investors exactly how the system will work. New cryptocurrencies appear, the distribution of tokens takes place at the lowest price. After that, investors evaluate the prospects and decide whether to buy tokens of this company or not. If the project is really promising, investors buy a certain amount of tokens, which are currently worth nothing.
Thusdevelopers receive money for development, and in the future, if the project becomes successful, the tokens will begin to gain a course. Investors make a profit, because at the very beginning of development they managed to purchase them at the lowest price.
The difference between tokens and cryptocurrency
It is necessary to understand that in practice there is some difference between a token and a cryptocurrency. Every cryptocurrency system operates on a blockchain, but this technology has so many applications that the functions of tokens can be drastically different from each other. Cryptocurrency is usually called direct means of payment. These, for example, include "Bitcoin", or "Ethereum Classic". These currencies have functions similar to regular electronic money.
Besides this, there are other tokens that perform completely different functions. For example, "Ethereum" is intended for concluding smart contracts, "Adex" for advertising, EOS for supporting blockchain startups. The tokens of these systems are used in a completely different way than ordinary money. This is the main difference between a token and a cryptocurrency.
Reviews
Modern financial analysts mostly agree that cryptocurrencies will change the world of money in the near future. Today, their capitalization amounts to tens of billions of dollars, and people who have already put them into practice understand how convenient and safe it is. However, positive reviews and forecasts of financial analysts do not always justifyyourself, therefore, before buying tokens of a particular system, you need to study it as much as possible and assess all the risks. Otherwise, there is a chance to just lose money.
