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 amounts to tens of billions of dollars, so every day more and more people seek to enter this industry.
The easiest way to join the world of cryptocurrencies is to buy tokens. But in order to do this 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 the token differs from cryptocurrency, the description of the history of occurrence is worth discussing, since without this 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 in the world work is 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, however, they managed to realize it efficiently and effectively only in 2009.
The first successful implementation of blockchain technology is a 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 one 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, 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 blockchain. Each network user stores this chain on his computer and has access to information about all transactions. Thus, the reliability of translations and the security of the system are simultaneously monitored by millions of computers around the world. This provides 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 a particular 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 you can talk about what is a token (cryptocurrency) and what is its role in this system.
What are tokens for?
The Bitcoin network, like other cryptocurrencies, uses not the usual money for transfers - dollars, rubles or euros, but the domestic currency. It is she who is called tokens .
Due to tokens, the cryptocurrency system gains absolute independence from the authorities, local legislation and any other regulatory authorities. No one can issue tokens except the system itself. They are inside it and cannot be brought into the material world. Tokens are paid only within the network.
What is the value of tokens?
Speaking about what a token (cryptocurrency) is, it is first of all necessary to note that in no cryptocurrency tokens are absolutely not provided with anything. This means that they are valuable only when someone is ready to buy them. But who will need them if they cost nothing?
The value of the 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 uses, the number of blockchain-based startups is growing exponentially every day. If the system becomes in demand, the price rises for tokens (cryptocurrency), the rate starts to increase. This is their value.
As an illustrative example, we can consider the exchange rate of tokens of the second most popular cryptocurrency system to date - Ethereum. Until 2016, this system was used primarily for domestic financial transactions. The price of the token was in the region of $ 10 and did not rise much higher than this figure.
In 2016, there was a hard fork network. She has become much more perfect. Now Ethereum has been used to conclude smart contracts, conduct crowdfunding campaigns, organize startup blockchains and much more. Thus, the network has become popular, and tokens are needed to work with it. It is not difficult to guess that after this the price of the token soared dozens of times. Today it is about $ 300.
Token receipt conditions
Now that it has become clear what a token (cryptocurrency) is, you can talk about how to get them. As already mentioned, the easiest way to get tokens is to buy them on the exchange or through an exchanger. However, the terms of such a purchase will not always be profitable, especially if we are talking about the most popular cryptocurrencies. You have to be very careful with this, analyze the growth chart, the market situation. Today it is a big business in which a beginner without special knowledge is unlikely to manage 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 operation is ensured through the work of millions of computers around the world.
Miners are creating transaction blocks and incorporating them into a chain. Only after inclusion in the chain is a transaction considered complete. This operation is not so simple, because for this it is necessary to solve cryptographic algorithms of incredible complexity. An ordinary PC will not be able to cope with this, since it simply does not have enough performance. Huge “farms” are created for mining tokens, on which powerful equipment works. The network rewards the miner with tokens for creating the block. That is how they are mined.
ICO
Many professional developers are thinking about how to create their own cryptocurrency token. If they succeed, a new cryptocurrency begins to develop, but it does not yet have a large number of investors. Nevertheless, developers need money, because without this, creating a large system will not work. In order to raise a certain amount of funds to begin the development of a new cryptocurrency, the developers conduct an ICO (Initial coin offering), which, translated into Russian, means "initial placement of tokens."
This means that developers make a presentation in which they show investors how exactly the system will work. New cryptocurrencies appear, tokens are distributed 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 currently cost nothing.
Thus, developers have money for development, and in the future, if the project becomes successful, tokens will begin to gain a course. Investors make a profit, because at the very beginning of development they managed to get them at the lowest price.
The difference between tokens and cryptocurrency
It must be understood that in practice there is some difference between the token and cryptocurrency. Each cryptocurrency system operates on a blockchain, however, this technology has so many uses that the functions of tokens can radically differ from each other. Cryptocurrency is usually called a means of payment. These include, for example, Bitcoin, or Ethereum Classic. These currencies have functions similar to regular electronic money.
In addition, 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. Tokens of these systems are used in a completely different way than ordinary money. This is the main thing that distinguishes the token from cryptocurrency.
Reviews
Modern financial analysts for the most part 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 managed to put them into practice understand how convenient and safe it is. However, positive reviews and forecasts of financial analysts do not always justify themselves, therefore, before buying tokens of a particular system, it is necessary to study it as much as possible and evaluate all the risks. Otherwise, there is a chance to just lose money.