Crypto Tokens vs. Cryptocurrencies vs. Crypto Commodities

The blockchain technology has taken the financial system by storm. As a result, we are witnessing a massive adoption of this technology in a very short period of time. That said, this sudden rise to prominence has introduced various products and trends within the crypto ecosystem. 

For instance, terms like Crypto Tokens, Cryptocurrencies, and Crypto Commodities have become increasingly common.

However, these terms are often used interchangeably or misused entirely. Although there is no major harm in users using them interchangeably, this practice can confuse others, especially those who are invested in the crypto ecosystem.

Moreover, understanding the difference between these terms is crucial for investors and developers within the blockchain space. Why?

Each represents a distinct category of digital asset with its own purpose and technical foundation. Moreover, each one has its own regulatory outlook, which matters a lot when considering usage and application.

In this blog, we will help you understand the difference between crypto tokens, cryptocurrencies, and crypto commodities. 

What Is a Cryptocurrency?

Cryptocurrency refers to digital and virtual assets based on blockchain technology. Crypto operates in a decentralized system, which means it is not controlled or regulated by any third party, giving all owners full freedom and decision-making power over the application and use. 

In simpler words, it's not controlled by a central authority like a government or bank. Instead, transactions are recorded on a distributed ledger via blockchain technology.

The concept of decentralized assets and currency has changed since its first public adoption in 2009 with the introduction of Bitcoin. Since then, it has been adopted by a huge population and changed the financial system of the modern world. 

Today, cryptocurrency has become more than just an investment option and means of transaction, as it has found its way into practically all industries and markets. 

Some prominent cryptocurrencies in the current market include Bitcoin (BTC), Ethereum (ETH), Solana (SOL) and other Altcoins. Moreover, new cryptocurrencies are emerging every day, and this trend does not seem to slow down anytime soon. 

As the crypto market becomes more adopted, various other trends within this ecosystem have been introduced.

For example, non-fungible tokens (NFTs), crypto gambling, and DePINS are becoming more popular. In such a case, mistaking cryptocurrency for other things like crypto tokens is very common. 

However, when comparing cryptocurrency vs token, it’s essential to understand that coins like Bitcoin and Ethereum are blockchain-native; they’re fundamental to the blockchain’s operation and often used to pay transaction fees and power the network. That said, let us understand the concept of Crypto Tokens in more detail. 

What Is a Crypto Token?

Source: Investopedia

Crypto Tokens refer to digital assets created and managed on the existing blockchain system. This means that instead of operating on their own native blockchain like most cryptocurrencies, Crypto Tokens operate on a popular blockchain infrastructure. 

Unlike coins such as Bitcoin (BTC) or Ethereum (ETH), which are integral to the operation of their respective blockchains, tokens are built using smart contracts and function within specific applications or ecosystems hosted on a blockchain.

For instance, several crypto tokens are built with Ethereum using its ERC-20 or ERC-721 rules. Nonetheless, they may also be launched using other blockchains such as Binance Smart Chain, Solana, Polygon or Avalanche.

Crypto coins like Bitcoin have a primary purpose as a digital currency, but crypto tokens are used for other purposes, such as voting, granting access, and holding property. Their functionality means they are important in DeFi, gaming, governance, and digital art.

Let's look at a few examples to clarify. These two cases can give you a clearer picture of crypto tokens.

• Uniswap (UNI): Uniswap is a token whose owners can decide how Uniswap’s DEX is developed.

• Chainlink (LINK): The token that fuels Chainlink, making it possible for smart contracts to use data from the news or other external websites.

For this reason, a crypto token can be treated as a souvenir that allows blockchain platforms to recognize and interact with it in dedicated ways. That said, these tokens are valuable and can be exchanged, and some specific tokens provide access to certain features in the blockchain system.

Types of Crypto Tokens

Learning about different types of crypto tokens can also help one properly understand the key differences between cryptocurrency and tokens. So, let's cover some of the prominent types of tokens in the crypto ecosystem. 

Utility Tokens

First and foremost, utility tokens are among the most popular crypto tokens. These tokens provide access to a specific service or application within a blockchain system, serving as “fuel” for decentralized applications.

For instance, consider the Basic Attention Token (BAT), which is used in the Brave browser ecosystem. Likewise, there is The Graph (GRT), which powers data indexing in decentralized applications.

Security Tokens

Security tokens are another type of crypto token that is gaining popularity. These tokens can be viewed as both tangible and non-tangible assets, such as real estate or shares in a company.

That said, security tokens are often regulated and need to comply with several securities laws. In some way, they work in opposition to cryptocurrency by defying the decentralized system. 

For example, INX Token is a regulated digital security traded in compliance with SEC regulations. 

Governance Tokens

Third on the list are governance tokens. As the name suggests, governance tokens give token holders the power to vote on important decisions. These important decisions include protocol upgrades and the fee structure of a blockchain system. Likewise, many times, the decision can also concern project development.

Governance tokens are one of the many assets that promote decentralization in the crypto ecosystem by giving the community a say. For example, Aave (AAVE) allows users to influence the parameters of the Aave lending platform.

Stablecoins

Stablecoins are those digital assets that combine the features of both cryptocurrency and centralized currency. For starters, this kind of token is pegged to the fiat currency or any other stable assets. The idea behind this token is to open up opportunities for users to invest in crypto but have a safe ecosystem. 

Stablecoins are usually less volatile and suitable for everyday transactions. Many stablecoins are in the market, and some of the most prominent ones include Tether (USDT) and USD Coin (USDC). 

Non-Fungible Tokens (NFTs)

Last but not least, we have Non-Fungible Tokens (NFTs). NFTs started as digital artwork within the crypto ecosystem. However, the NFT has now increased to collectibles, in-game items and even music. 

NFTs are somewhat more unique than other crypto tokens as it has a distinct value and identity. 

Token vs Coin in Blockchain: What’s the Difference?

The token vs coin in blockchain debate is one of the most frequently misunderstood concepts in the crypto space. While both tokens and coins are digital assets, they serve fundamentally different roles and are created through different means.

Basis	Crypto Coin	Crypto Token
Blockchain	Crypto coins run on their blockchain.	Crypto tokens are built on top of an existing blockchain.
Examples	Some of the most popular examples of Crypto coins include Bitcoin (BTC), Ethereum (ETH), and Cardano (ADA).	The most prominent Crypto tokens are Uniswap (UNI), Tether (USDT), and Chainlink (LINK).
Primary Use	Crypto coins are primarily used as digital money, for gas fees, and for staking.	Crypto tokens are primarily used for utility and governance. However, they have recently been used for digital rights in the crypto ecosystem.
Creation	Crypto coins are created via consensus mechanisms like mining or staking.	Crypto tokens are created via smart contracts.

If you are still confused about the differences between crypto tokens and crypto coins, let’s try to make it clearer in a short and concise way.

In the simplest form, Coins are like digital cash. They can be used to buy goods or services or to pay fees on the blockchain. On the other hand, the Tokens are more like vouchers or event passes. They work within a specific blockchain-based application or ecosystem.

What Are Crypto Commodities?

Now that we are all clear about cryptocurrencies and crypto tokens, let us move on to something that is not mentioned in the digital ecosystem compared to its counterparts: crypto commodities. Crypto commodities are also digital assets, but there are some key differences. 

Crypto commodities are digital tokens that are backed by physical commodities like gold and oil. This means they represent raw resources and are fundamental in new blockchain functions. 

This means crypto commodities are neither cryptocurrencies nor tokens. These digital commodities act as building blocks for any decentralized platform. That said, Crypto commodities are crucial to blockchain infrastructure and are often compared to real-world commodities like gold, oil, or bandwidth.

There are many popular crypto commodities. For example, think of BTC, which is often referred to as digital gold. If you do not know, Bitcoin, unlike most crypto, has a limited supply and offers a store of value; as a result, it is regarded as digital gold. 

Common Uses of Crypto Commodities

• Store in Value: The first and arguably the most important use of a crypto commodity is to store value. For example, think of Bitcoin, which is considered as digital gold due to its limited supply. People invest in BTC for future profit. In addition, crypto users and investors are also using crypto commodities as a hedge fund to protect themselves against factors like inflation and market instability. 

  
  

• Trading and Investment: Another major use case of crypto commodities is trading and investment. Commodities like BTC and ETH are commonly used in spot and futures markets as investments. Furthermore, they are also gaining traction in derivatives trading, which is similar to commodity trading, like gold and oil. 

  
  

• Collateral in DeFi: As the name suggests, Crypto commodities are now being used as collateral in the digital and decentralized financial ecosystem. This means users and commodity owners can deposit them for other assets. For instance, users can deposit ETH into lending platforms like Aave or Compound to borrow stablecoins.

  
  

• Tokenization of Physical Assets: Blockchain enables the creation of tokenized versions of real-world commodities like PAX Gold (PAXG), which is backed by physical gold. One major feature of this coin is that these tokens can be traded 24/7, unlike stocks in the share market. 

• Decentralized Network Fuel: Last but not least, these commodities are commonly used to pay gas fees on the blockchain platform. For example, ETH is used to pay gas fees on the Ethereum network. 

  
  

Which One Is Best for Investment? Navigating Crypto Assets for Maximum Returns

If you want to diversify your investment in the crypto ecosystem, you must know that the different options offer different returns and, hence, different risks. So, for starters, there is no direct answer to which one is the best for investment.

The financial goal and investment strategy of the user highly dictate this decision. That said, risk tolerance also plays a huge role in the final decision on the best platform. 

First and foremost, let’s start with arguably the most popular asset in the blockchain ecosystem. You guessed it right, it's cryptocurrency. Bitcoin is usually regarded as "digital gold" due to its limited supply and store-of-value characteristic.

Ethereum, however, caters to a huge decentralized application ecosystem and therefore is suitable for long-term holding and investment based on utility. These coins tend to be less risky than newer tokens but still face extreme market volatility.

Next, we have crypto tokens. Crypto tokens offer more diverse and sometimes riskier investment options. Utility tokens like Uniswap (UNI) or governance tokens like Aave (AAVE) can provide high returns, especially if the underlying platform grows in usage.

However, security tokens are more speculative, typically depending on the success of the individual project. Security tokens may draw more traditional investors as they often represent real-world assets and come with regulatory oversight.

Finally, we have crypto commodities. Cryptocommodities like Bitcoin and Ethereum (when used as network fuel or stores of value) also present investment opportunities, especially in decentralized finance (DeFi).

Cryptocommodities used as collateral or to pay gas fees can serve essential functions in blockchain infrastructure, giving them stable demand, but they may not provide immediate short-term returns.

Why Learning the Difference Between The Crypto Assets Is Important? 

We have learned every single difference between these three crypto assets within the blockchain technology. That said, most people suggest learning these key distinctions is important, but the why factor always seems to be missing. Let us understand the idea behind the need to differentiate these terms, which are the same. 

• Learning the differences helps to make better investment decisions as each digital asset comes with its own benefits, returns and risk profile. 

• It helps you to manage the associated risks more carefully. 

• It ensures that you are compliant with the laws, which can include taxation and use case regulations. 

• Knowing the differences can help you navigate other platforms in the blockchain ecosystem, like the NFts and DeFi platforms. 

• Understanding the differences is quite essential for core users like developers as the details are required for building functional blockchain applications and platforms. 

Conclusion 

As the blockchain technology grows, we must understand the differences between the different terms and trends within the ecosystem. For instance, the factors like crypto tokens, cryptocurrencies, and crypto commodities are commonly interchanged, which can create confusion.

So, it is high time that we understand, while these terms are often used interchangeably, they each represent unique asset classes with distinct roles, utilities, and value propositions within the crypto ecosystem.

Frequently Asked Questions (FAQs)

1. Is Cryptocurrency and Crypto tokens different?

Yes, cryptocurrency and crypto tokens are two different assets in the blockchain ecosystem. The major difference is that Cryptocurrency is built on its own blockchain, while crypto tokens are built on an existing blockchain platform. 

2. What is a Crypto commodity? 

Crypto commodity is a digital asset that is backed by or pegged to physical assets. For example, popular crypto commodities are pegged to gold or oil. 

3. Where can I buy and sell crypto commodities?

You can buy and sell crypto commodities on blockchain platforms. 

4. Which is better, cryptocurrency vs Crypto Tokens?

There is not a single answer for that. The ideal option for you depends on your investment goals and regulations within your area. Furthermore, you also need to account for the risk levels in each crypto asset. 

5. Are crypto tokens risky? 

Crypto tokens are like any other crypto asset, which means they are risky. You need to pay extra care before making any kind of investment or trading decision with this asset. 

6. Can I buy NFTs with Crypto?

Yes, you can buy NFTs with cryptocurrencies. 

7. Which is better for me, a crypto coin or a token?

Think of it this way: Coins can be used to pay transaction fees or to transfer value. Tokens are best for accessing services inside a certain ecosystem. Because of their inherent network value, coins are a superior option for long-term investments. Tokens give developers the freedom to design applications tailored to a particular project.