Bitcoins, Alt Coins, Tokens: What does it all mean?

Read enough articles on cryptocurrency and you are bound to be left scratching your head from time to time.

The world of cryptocurrency is vast and detailed enough to have already developed its own vocabulary despite being relatively new. The vocabulary can be so complex that if you're not a regular participant in crypto transactions, it's easy to get lost in the broader discussion.

A good example of the difficulties of speaking the crypto language is found in the following three terms: bitcoins, alt coins, and tokens. All have very specific meanings. Unfortunately, even those meanings can be fluid when having discussions with other crypto fans.

If your only concern with cryptocurrency is being able to deposit bitcoins and alt-coins so you can play Mega Moolah online, it probably doesn't matter to you how people discussing cryptocurrency use the three terms. But if you want to have intelligent conversations with others in the know, it helps to define your terms properly. That is what this post seeks to accomplish.

In the following paragraphs you will discover what the three terms really mean. Understanding their meanings will make it easier for you to follow cryptocurrency discussions - at least among people who are using the terms correctly.

1. Bitcoin: A blockchain and a currency

We are starting with Bitcoin for a couple of reasons. First, Bitcoin is the most well-known cryptocurrency platform in the world. Second, the term 'Bitcoin' itself is also subject to a variety of definition subtleties. Mastering the subtleties makes it easier to understand what you are reading or hearing.

Bitcoin is essentially a computer technology built on something known as 'blockchain'. Its original developer, a computer programmer who operates under the pseudonym Satoshi Nakamoto, created Bitcoin as a digital monetary system. When you see the term 'Bitcoin' with a capital 'B', it is a reference to the platform itself.

The same term spelled with a small 'b' instead of the capital 'B' refers to the actual digital coins. In other words, you spend bitcoins every time you make a deposit at one of the Bitcoin gambling sites listed here on the MegaMoolah.com website. You spend bitcoins every time you buy something through a retail site using the coins stored in your wallet.

All of this seems pretty clear-cut for the most part. However, there is some inherent confusion built into the system. Let's say a casino advertises itself as accepting Bitcoin. They use the term with a capital 'B'. Are they talking about the platform or the actual coins? Actually, they are referring to both.

Accepting Bitcoin deposits means that they allow customers to deposit bitcoins instead of fiat currency. So yes, they are talking coins here. But in order for that to happen, the casino has to be part of the Bitcoin network. They have to have a digital wallet capable of accepting the coins. So that means they are also participants in the Bitcoin platform.

The Bitcoin blockchain

One last thing to confuse you is the Bitcoin blockchain. It is not abnormal for bloggers and journalists to refer to the blockchain behind the system using the term 'Bitcoin'. They do this for the simple fact that neither the Bitcoin platform nor its digital coins would actually exist without the blockchain. Therefore, they see Bitcoin as a blockchain before and above anything else.

What is the blockchain? It is the computer code that forms the foundation of Bitcoin. Blockchain is a combination of operating code, rules of governance, and a distributed ledger that keeps track of every transaction occurring on the network. Without blockchain, Bitcoin would not exist.

2. Alt Coins: Coins other than bitcoins

Our next term for discussion is 'alt coins'. This term is sometimes misconstrued to mean digital currencies that act as alternatives to fiat. As logical as that sounds, that is not what the term means. Alt coins are actually digital currencies created as alternatives to bitcoins.

Bitcoin was the very first digital currency built on blockchain and released to the general public. Its blockchain is open source, meaning anyone can take the underlying code and modify it for their own use. Would it surprise you to know that thousands of people have done so?

Let's briefly look at Litecoin as an example. Like Bitcoin, Litecoin would not exist without blockchain. But its developers did not build a new and unique blockchain from the ground up when they created Litecoin. Instead, they took Bitcoin's blockchain and modified it for their own use. In so doing, they created an alt coin.

This is not to say that all alt coins descend directly from Bitcoin. A sizable percentage of them do, but there are exceptions to the rule. The most important thing to understand is that alt coins are primarily just alternatives to bitcoins for the purposes of conducting business via digital currency.

The motivation behind alt coins

Now that you know what an alt coin is, it is reasonable to wonder why these coins are created. If bitcoins are an effective means of trade outside the constraints of fiat currency and the traditional banking system, why do we need more?

People and organisations create alt coins for a lot of different reasons. Here are just a few:

  • Philosophical Differences - Cryptocurrencies only work as monetary systems as long as all the parties involved agree to a certain system of governance. Every now and again, differences in philosophies make governance challenging. Rather than upset the apple cart, so to speak, those with differing philosophies find it easier to establish new alt coins.
  • Code Improvements - Bitcoin's blockchain was brilliant in its day, but time has revealed that it has some inherent weaknesses. A lot of alt coins are established for the sole purpose of improving on the Bitcoin blockchain.
  • Utility - Bitcoin was always meant to be a monetary system from the very start. However, it turns out that the usefulness of blockchain extends well beyond buying and selling. So some alt coins have been developed to take advantage of the full potential of blockchain above and beyond a monetary system.

There is one final reason people create alt coins that trumps the three previous reasons: Bitcoin's transition from a monetary system to a wealth storage facility. That transition, which has taken place over many years of trading, is quickly putting bitcoins out of the financial reach of average consumers.

Digital gold, really?

Bitcoin has earned the nickname 'digital gold' in recent years due to its tremendous monetary value. Remember that at its peak, a single bitcoin was worth just under US$20,000. Bitcoin is obviously not gold, the term came about when global instability set in and made it a safe haven, which it may very well be soon again.

Even at the much lower price of bitcoins today, very few people considered average consumers can afford to purchase a single coin. They have to deal in smaller denominations. More importantly though, mining has become so expensive that only a small handful of corporate entities are doing most of the work.

Creators of alt coins look at the modern state of Bitcoin and see that it is no longer the monetary system it was intended to be. It's more of an investment and a means of storing wealth than anything else. So they create alt coins as a means of putting the power of cryptocurrency back in the hands of consumers.

3. Tokens: An asset or utility

Our discussion finally brings us to the term 'token'. Before we can understand tokens, we must first understand the term 'cryptocurrency' is a misnomer. A currency is nothing more than a unit of account, a store of value, or a medium of exchange. Because the digital coins represented by the Bitcoin platform fit all three descriptions, Bitcoin itself is classified as a cryptocurrency. However, that not need always be the case.

For example, consider Ethereum. It is a blockchain technology that finds its roots in Bitcoin. However, it was not written to be a monetary system. The Ethereum blockchain was written in such a way as to allow it to be used to create everything from monetary systems to mobile games - which brings us to tokens.

A token is a representation of an asset or utility. Perhaps you play one of the many RPG games in which characters can buy and sell items. The commerce portion of that game is likely powered by some sort of blockchain that keeps track of all the transactions within the story. Players buy and sell using the game's tokens. Those tokens have no intrinsic value outside of the game. They represent only a game asset.

On the other hand, consider a company in the logistics sector. They may use blockchain to keep track of every item that flows through the supply chain from start to finish. Each of those items would be represented by a token. As such, the token represents an asset. Other tokens within the same system can represent functions within the supply chain. Those tokens would represent utility.

In summary

The terms around bitcoins, alt coins, and tokens can admittedly be difficult if you are not familiar with the cryptocurrency culture and language. Just remember that bitcoins are digital coins created by the Bitcoin platform, alt coins are digital coins that act as alternatives to bitcoins, and tokens are non-coin assets or utilities.

Byline: This article was published by Mega Moolah expert Henry. Media and other enquiries.

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