What do Facebook and JP Morgan Chase have in common? It might strike you as a strange question, with one company concerned with providing a social media platform, and the other being one of the largest banking institutions in the world.
Facebook’s venture into the world of cryptocurrencies with their Libra Coin introduced a whole new vocabulary and prised open the eyes of the most stubborn blockchain deniers. Feeds were suddenly flooded with posts about Libra, blockchain and the benefits it can bring and how Facebook can take the helm of the rudderless ship sailing towards the rocks of the murky uncharted waters of decentralisation.
Meanwhile, a little further back, banking giant JP Morgan, who were once one of Bitcoin’s most vocal critics, created their own digital coin, imaginatively called the JPM Coin, aimed at removing the volatile price fluctuations associated with Bitcoin. So JPM Coin is a 'coin' and Libra is a 'cryptocurrency', both owned by their respective corporations who have in many an observers mind stripped away one of the core ideologies of blockchain technology.
Pundits were quick to recategorise them as "virtual money" or "digital currencies" because by being run by corporations, users are required to trust them, thereby breaking the idea of decentralisation. While it may not be as clear cut as that, the idea that Facebook, a company plagued by privacy-related scandals, want you to give them access to your sensitive financial data is somewhat ironic.
Cryptocurrencies are a digital or virtual currency built with strong cryptography, making them highly secure and immutable. Most rely on blockchain technology, a distributed ledger verified by a decentralised network of computers, a concept the world has the elusive Satoshi Nakamoto to thank for. In the crypto space, the terms coin and token are often used interchangeably but are they actually the same thing? Let's take a more in-depth look.
Digital coins are native to their own blockchain. Bitcoin (BTC) and Ether (ETH) are perfect examples of cryptocurrency coins as they both exist on their own independent ledgers. BTC operates on the original Bitcoin blockchain, and similarly, ETH is used on the Ethereum blockchain. As you might expect, these coins are used in the same manner as money as they are fungible, portable, can be divided into smaller dominations and are limited in supply.
Cryptocurrency coins can be used to pay for physical goods although as Ether is used within the Ethereum blockchain, it has additional functionality. The open-source nature of blockchain has allowed thousands of altcoins to be created by forking from the original Bitcoin protocol. So technically if the coin has its own blockchain, but it is not Bitcoin, it is known as an altcoin - although the versatility of Ethereum may see it being publicly regarded as an asset in its own right rather than an altcoin.
This brings us on to tokens. The significant difference between a token and a coin is that a token needs another blockchain platform to be able to operate. The most common platform is Ethereum because of its rich feature set and the ability to create smart contracts on it. Tokens built on the Ethereum blockchain such as the popular Dragon Coin (DRG), are known as ERC-20 tokens.
Tokens can be used for making payments (currency tokens), and many are used to create decentralised applications (utility tokens) which give holders access to the function of the project – like with DRG. Dragons evolution of the entertainment industry will see it achieving mass adoption across a range of vertical markets; however, it has compelling use cases in VIP gaming, eGaming and iGaming. Holders can convert their DRG into exclusive Dragon Global Chips which can only be used in a Dragon affiliated junket by changing them for non-negotiable gaming chips.
There is another token called a "security token" which is used to represent an individual's investment in a project. Security tokens are given value from a start-up but crucially don't provide the holder with any ownership of the company. People invest in these tokens at the ICO stage in the hope that their value will increase in the future, sometimes the investments pay off but take a quick look here at some abandoned projects.
So whether you own coins, tokens or virtual currencies, they can all be referred to as digital currencies because they exist only in a digital form and are therefore intangible. Digital currencies like Dragon Coin cut out any middlemen, which is why transactions made using the Dragon Social Wallet are low cost and happen almost instantaneously.
So far so good but as previously mentioned, the definitions are fluid and overlap and the slight spanner in the works comes up with the term 'Virtual Currency' which has entered modern parlance. Virtual currencies in this context are digital in nature and are typically issued by developers to be used as a payment method in a specific virtual community such as EA's FIFA points or more recently GTA's in-game casino. These in-game payment methods are not crypto-based and usually only occur in the game's ecosystems and should not be confused with the volatile virtual currencies in the crypto space.
This article aimed to clear some of the fog around the definitions used in the blockchain world and highlight the different uses for coins, tokens and virtual currencies. The industry is still in its infancy in many respects, so new definitions will undoubtedly come to the fore. Definitions even vary between countries and indeed even in different parts of the countries. Some view cryptocurrencies as property, others view them as securities while others regard them as money.
In the fast-paced blockchain industry, all you need to do is follow the Dragon blog to keep up with the latest trends and developments.
And rest assured that Dragon won't be taking to the seas. Dragon will by flying over them, looking down on currencies such as Libra stuck in the doldrums as they try to escape the tangled regulatory nets cast over them.