Crypto Tokens vs. Cryptocurrencies vs Crypto Commodities: What's the Difference?
Cryptoforce|Crypto Tokens vs. Cryptocurrencies vs. Crypto Commodities: An Overview
Crypto tokens are any tokens created using a blockchain. Cryptocurrencies are crypto tokens designed to be used as payment methods. There are two crypto commodities definitions used by various parties: cryptocurrencies are commodities, and crypto commodities are tokens representing an underlying asset.
These three terms are often used interchangeably, but as you'll see, there are distinct differences.
Crypto Tokens
A token is a representation of something else. It could represent data, a person's security credentials, information stored within a database, or permissions to access a distributed ledger.
Tokens issued through a blockchain are crypto tokens. This blanket term includes cryptocurrencies, non-fungible tokens, crypto commodities, security tokens, or any other virtual asset associated with a blockchain. Bitcoin's native token, bitcoin, is a crypto token, as is Ethereum's ether.
Cryptocurrencies
Cryptocurrencies are crypto tokens issued using a blockchain, designed to be used as an alternate form of payment. However, "cryptocurrency" has also become a blanket term used to refer to any token that has an exchange or market value.
Examples of cryptocurrencies include Bitcoin, Ethereum, Dogecoin, Solana, and Cardano. Cryptocurrencies are also called crypto coins, coins, tokens, and virtual currencies.
Crypto Commodities
There is some debate as to what constitutes crypto commodities, but in general, there are two definitions in use:
- Bitcoin and other virtual currencies, as they are issued or when used in derivative contracts, are commodities as declared by the Commodities and Futures Trading Commission (CFTC) and can thus be considered crypto commodities.
- A token that represents an underlying asset (has its value transferred to a blockchain token) becomes a tradable crypto commodity—unless it represents a security or meets the definition of a security, in which case it is a security token.
The CFTC's definition is clearly stated: The commission believes all virtual currencies and their derivatives are commodities and fall under its jurisdiction.
By the second definition, a crypto commodity can be anything that has its value transferred to a token, which is called tokenization. For example, oil is considered a commodity in the physical world. There is a certain cost associated with extracting it from the earth, and it is used to power the global economy. If one barrel of oil were represented on a blockchain by one token, that token would become a crypto commodity.
The History of Crypto Commodities
A quick dive into the evolutionary history of cryptocurrency platforms is warranted to understand the concept of crypto commodities.
As the Bitcoin network evolved, it gained popularity for its ease of payment processing and decentralized nature. Technology stalwarts quickly realized that blockchain networks could be used for more than simple online payments. Bitcoin had a fiat currency value, which created interest in transferring other asset values to the blockchain. Asset ownership could be recorded on the chain, and tokens created to represent ownership of that asset.
Once this was realized, the world exploded with tokens. Digital art was tokenized on a blockchain and sold to collectors; virtual property in a persistent digital landscape was tokenized and sold; and the concept of tokenizing real estate and property emerged. Many other tokens were created and could be bought and sold on digital exchanges.
Why the Terms Are Important
For investors, it's important to distinguish between these different types of tokens because the terms are loosely applied by many people, which can cause confusion for those just starting out.
"Crypto tokens" is a blanket term that encompasses all blockchain tokens. But depending on who you're talking to, they could be referring to a cryptocurrency they might just be using a different term.
Cryptocurrencies are usually valued based on market traction, supply schedules, network difficulty levels, and speculation about their future. Crypto commodities, as defined by the CFTC, should follow market prices because they are either virtual currencies or derivatives.
According to the second general definition of crypto commodities, the tokens should be valued based on the prices of the underlying assets.
What Exactly Is a Crypto Token?
"Crypto token" is a blanket term or category that includes all assets issued on a blockchain, such as cryptocurrencies, non-fungible tokens, or security tokens.
Is Cryptocurrency Still a Good Investment?
Cryptocurrency might be a good investment for someone who enjoys speculating and can tolerate the risks inherent to crypto investing. If you're searching for a way to build wealth, a nest egg, or save for retirement, cryptocurrency might not be a good option.
Is Ethereum Considered a Commodity?
Ethereum is a blockchain designed to function as a worldwide virtual computer for building applications. Its native token, ether, is considered a commodity by the CFTC because it is a virtual currency.
Concerns About Crypto Commodities
As of August 2023, virtual assets like cryptocurrency and crypto commodities do not have clearly defined legislation or regulatory guidelines. Due to existing regulations, authorities have claimed jurisdiction over specific blockchain-related tokens, assets, and investing and trading activities. However, there is still controversy regarding regulating decentralized assets such as crypto and if regulators have jurisdiction over them.
Both the Chicago Mercantile Exchange and the Cboe Options Exchange have cryptocurrency-derived products, which can be readily traded alongside more traditional commodities like gold and corn.
However, in July 2023, the Southern District of New York district court issued a summary judgment against Ripple for violating securities laws when it sold cryptocurrency to institutional investors. But the company was judged to have not violated any securities laws when selling its coins on exchanges to individual investors. The effect this ruling will have on crypto commodities, which are basically cryptocurrencies, remains unclear.
Key Takeaways
- Crypto tokens are any tokens created using a blockchain, including cryptocurrencies, non-fungible tokens, crypto commodities, or security tokens.
- Cryptocurrencies are crypto tokens that are used as payment methods or as speculative investments, generally assigned an exchange or market value.
- Crypto commodities are crypto tokens representing a physical commodity on a blockchain or, according to the Commodities and Futures Trading Commission, any virtual currency.
- Value should be determined based on how the virtual asset is used, intended to be used, market sentiments and traction, and expectations.
Disclaimer
The information provided on this blog is for educational and informational purposes only. It is not intended to be a substitute for professional financial advice, investment recommendations, or individualized guidance. We encourage readers to conduct their own research and consult with qualified financial advisors before making any investment or financial decisions. The author and publisher are not responsible for any financial losses, risks, or damages incurred because of the information presented here. Investing and financial decisions involve risk, and past performance does not guarantee future results.