The most common categorization of cryptocurrencies are:
- Alternative Cryptocurrency Coins (Altcoins)
Alternative cryptocurrency coins are also called altcoins or simply “coins”. They’re often used interchangeably. Altcoins simply refers to coins that are an alternative to Bitcoin. The majority of altcoins are a variant (fork) of Bitcoin, built using Bitcoin’s open-sourced, original protocol with changes to its underlying codes, therefore conceiving an entirely new coin with a different set of features. Here’s an article that simplifies the concept of forks, hard forks and soft fork Examples of altcoins that are variants of Bitcoins codes are Namecoin, Peercoin, Litecoin, Dogecoin and Auroracoin.
There are other altcoins that aren’t derived from Bitcoin’s open-source protocol. Rather, they have created their own Blockchain and protocol that supports their native currency. Examples of these coins include [Ethereum], Ripple, Omni, Nxt, Waves and Counterparty.
A commonality of all altcoins is that they each possess their own independent blockchain , where transactions relating to their native coins occur in.
Tokens are a representation of a particular asset or utility, that usually resides on top of another blockchain. Tokens can represent basically any assets that are fungible and tradeable, from commodities to loyalty points to even other cryptocurrencies!
Creating tokens is a much easier process as you do not have to modify the codes from a particular protocol or create a blockchain from scratch. All you have to do is follow a standard template on the blockchain – such as on the Ethereum or Waves platform – that allows you to create your own tokens. This functionality of creating your own tokens is made possible through the use of smart contracts; programmable computer codes that are self-executing and do not need any third-parties to operate. It really is super cool!
Tokens are created and distributed to the public through an Initial Coin Offering (ICO), which is a means of crowdfunding, through the release of a new cryptocurrency or token to fund project development. It is similar to an Initial Public Offering (IPO) for stocks, with critical distinctions which are explained in the article
The main difference between altcoins and tokens is in their structure; altcoins are separate currencies with their own separate blockchain while tokens operate on top of a blockchain that facilitates the creation of decentralized applications.