Cryptocurrencies and tokens are crypto assets, but they have differences; see what they are

The decentralized finance market is surrounded by two major digital assets: cryptocurrencies and tokens. Both can be purchased as a form of investments and are known as crypto assets. Both can also be used as a means of storing and transacting value.

However, the functions of these assets can be different. The main difference between them is that cryptocurrencies represent market-defined value transfers, just like it works with the dollar and other currencies and tokens are transfers of values ​​defined by the asset owner or creator.

Cryptocurrencies are digital currencies with monetary value created on blockchain, known for having an advanced encryption system that ensures the validity and recording of transactions. And it is impossible for a person to be able to change the characteristics of the asset.

Tokens are directly related to smart contracts. In this way, they digitally represent a real asset, which can be customized or programmed, says Tatiana Revoredo, a professor at Insper.

Smart contracts, also known as smart contracts, are protocols that have the same purpose as physical contractual instruments that are established between two parties. However, instead of being on paper, they are made digitally.

“In other words, the token serves to reduce unnecessary bureaucracy”, says Vitor Delduque, director of new business at MB Tokens.

This crypto asset model can represent any product, such as digital arts, coffee crops or even stocks, in the form of digital addresses. “Investments that were previously carried out only by people or companies with a high volume of capital, today can be accessed from R$ 100”, says Delduque.

In this way, prices can be set by companies and not just by supply and demand.

The Insper professor also says that “there is still no unified classification on tokens. But regardless of the classification you adopt, one thing is for sure, tokens can represent practically anything.” She pointed out some examples of tokens:

• Physical object (a commodity);
• Digital object (a digital work of art);
• Right (debts, shares, bonds, participation in a company, the right to use a service, a copyright, the property right, etc.);
• Representation of institutional responsibility (such as Central Bank digital currencies);
• Stablecoins: which are mostly pegged to a real currency, such as the dollar

for investors

From an investor’s point of view, there is not much difference between buying a token or a cryptocurrency, “just choose what makes the most sense”, says Caio Villa, investment director at Uniera.

Tatiana, on the other hand, states that a conservative investor, for example, gives much more importance to the security of his assets than to the profitability and liquidity of the investment. “So, a conservative investor who wants to invest in the long term should have a maximum of 2% to 3% in risky assets”.

Crypto assets are considered risky assets due to high volatility.

In turn, she says that a bold investor is more risk-tolerant, compared to other investor profiles, therefore, is more open to investing in cryptocurrencies. “In this case, cryptocurrencies likely have a place in portfolios of at most 5%.”