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What is the difference between a blockchain coin, an altcoin and a token?

"Coins" are digital money which has been created using encryption techniques, and that store value over time. Basically, coins are the digital equivalent of money that we use in every day life. Each coin type ( Bitcoin, Ethereum, Litecoin etc) is associated with a specific blockchain that recognizes only that coin type. You can not use Litecoin for example on a Bitcoin blockchain. Users can purchase, sell and trade one coin type for another on one of the many existing coin exchanges.

The main characteristics of coins are:

  • Coins are always associated with a unique and specific public blockchain.
  • Participation in the blockchain network thorough the purchase of coins is not restricted in any way.
  • Coins can be purchased with cash, exchanged for other coins on an coin exchange, and they may be sent, received or mined.
  • Coins are not meant to perform any functions beyond acting as money.

"Altcoins" is a general term given to a class of cryptocurrencies that are an alternative to Bitcoin. Using Bitcoin’s open-sourced protocol, developers can add features to the existing code base , therefore creating an entirely new coin with a different set of features. This is commonly referred to as a fork There is also a category of altcoins that aren’t derived from Bitcoin, but have elected to created their own blockchain protocol that supports their own native currency. Examples of these coins include Ethereum, Ripple, Omni, Nxt, Waves and Counterparty.

Architecture of a blockchain

"Tokens" are digital assets, issued by a project, which allow the token holder to participate in the project’s ecosystem. Tokens can be used as a form of digital asset representing a users share, or used to be given access to the project’s functionality. Digital tokens are associated with a specific project, and have no value outside of that project. Tokens are created and distributed to the public through an Initial Coin Offering (ICO), which is very similar to a stock Initial Public Offering (IPO) for stocks. Coin market cap shows the most popular tokens based on market capitalization here: Coin Market Cap or Coin Gecko.

The main characteristics of blockchain tokens are:

  • Tokens are created as part of an ICO.
  • Tokens are only usable with the blockchain they are associated with.
  • Tokens are not mined, they have to be purchased.
  • Tokens can represent assets other than currency.

What is a Blockchain wallet or crypto wallet ?

A crypto wallet is the digital equivalent of the wallet where you currently store you paper currency. It stores not only a record of the coins that you own, but also your public and private encryption keys. Each wallet is assigned an address when it is created, and this address is used when sending and receiving crypto currency. Wallets are not generally universal for all cryptocurrencies so it is not uncommon to have one wallet to store Bitcoin, one to store ethereum etc. Some wallets such as Exodus can handle multiple cryptocurrencies.It is critical that the user make sure that the wallet they select supports the cryptocurrency that they are using.

There are two main categories of wallets today - hot wallets and cold storage wallet.

Hot wallets are actively connected to the internet which makes them easily accessible for quick payments and transfers. Unfortunately this also makes them an easy target for hacking and vulnerable to cyber-attacks. Categories of hot wallets include web wallet, exchange wallet, desktop wallet, and mobile wallet.

Cold storage wallets are not continually connected to the internet and are therefore not as vulnerable to hacking, but the wallets owner is now responsible for physically securing the private key either through a paper wallet or a hardware wallet.

With so many features and security option to choose from, users have a wide choice of options. Below is a summary of the various options that are currently available.

The desktop wallet is an online software wallet which is hosted on the users local computer. Since the wallet is running locally, the private key is also stored locally. This means that the security of the asset in the desktop wallet is directly dependent on the security of user's desktop. If the local machine is hacked or is a victim of malware the wallet assets can be stolen. An Ethereum Wallet , Metamask and for Electrum for Bitcoin are all examples for this kind wallet.

A mobile wallet is identical to a desktop wallet, except it’s available as an app on your phone or tablet and gives you all the benefits of being mobile. It allows you to make payments in physical stores by using "touch-and-pay" via NFC (Near Field Communications), scanning a QR code, or sending cryptocurrency to any merchant who accepts that form of payment. Jaxx Wallet is a popular example of a mobile wallet app, available for both iPhone and Android devices.

Web wallet is an online software wallet where data is hosted on a real or virtual server. Although it is the easiest type of wallet to use, it is also considered the least secure because you don’t control the private keys. My Ethereum Wallet is an example of a web wallet.

As the name implies an exchange wallet is created and resides at a digital coin exchange such as Poloniex Coin Exchange, Bitthumb Coin Exchange, Bitfinix Coin Exchange. These exchanges allow you to purchase cryptocurrency using various methods (fiat currency, credit card, bank transfer etc ) and store your assets on the exchange itself. This is convenient for the user, since they can now trade and store value all their cryptocurrencies in a single location without having to deal with public or private keys. Users simply log into the exchange with their user name and password and execute transactions. Using an exchange wallet is the least secure way of storing crypto assets(since all keys are stored on the exchange as well), and once purchased these assets should be transferred to a more secure wallet at the earliest possible time.

A paper wallet literally means a wallet on a piece of paper. It is a document containing all of the data necessary to generate any number of private keys. Although this wallet provides maximum security against hacking it is also the least flexible. Sending a transaction from a paper wallet requires either scanning the QR code (if you have one) or manually entering the addresses by hand, which can be error prone.Any mistake in supplying an address could send your currency to an unwanted recipient where it can not be retrieved.

Hardware wallets generally look like a USB stick, hold private keys electronically and facilitate quick payments. Hardware wallets provide maximum security as private keys that are generated on the device never leave the device. These keys can only be compromised if the device is lost, stolen, or damaged. At this time hardware wallets are currently limited to Nano S Hardware Crypto Wallet and Trezor Hardware Crypto Wallet.