Crypto Economics vs Token Economics
Crypto Economics vs Token Economics
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Introduction
What we’ve been noticing
To some, the difference between cryptoeconomics and tokenomics may not be clear yet. Some might even think that there's no difference between the two. But no, they are very different. Fostering a shared understanding of cryptoeconomics terminology and its relationship to blockchain technology is very beneficial. The aim of this post is therefore to create a clearer understanding of the common terms used, so that we can avoid confusion when talking about the protocol in real-world applications.
Key Topics this Article will Cover:
What are the differences between coins and tokens?
What are tokens and tokenomics?
What is cryptocurrency and cryptoeconomics?
What are the differences between tokenomics and cryptoeconomics?
Conclusion
What are the differences between coins and tokens?
One of the first things to consider is whether the asset is a “coin” or a “token.” It’s worth noting hat this kind of classification isn’t spotless because many people and publications use the terms coin and token interchangeably. However, by way of having a kind of crypto taxonomy, understanding the basic breakdown of what makes a coin, a coin and a token, a token, is essential.
A coin (aka layer 1 token) is a cryptocurrency that uses its own blockchain network. That blockchain network contains all the data of transactions that were made with the network’s native crypto coin. Examples are B 0.00%↑ for Bitcoin and/or ET 0.00%↑ for Ethereum.
A token (aka layer 2 token), on the other hand, does not have its own blockchain. Instead, they use someone else’s existing blockchain. For example, most tokens rely on Ethereum’s network as a foundation. Tokens that use the Ethereum blockchain network are called ERC-20 tokens.
What are tokens and tokenomics?
A token is a cryptocurrency that doesn't have its own native blockchain. Developers build it on the blockchain of another cryptocurrency. While they often share deep compatibility with the cryptocurrencies on that network, they are a wholly different digital asset class.
Some examples of well-known tokens:
Tether USD ($USDT)
DAI Stablecoin ($DAI)
Binance USD ($BUSD)
BNB ($BNB)
Shiba Inu ($SHIB)
These tokens were developed on top of the Ethereum blockchain and are called ERC-20 tokens.
Economics of tokenization (aka tokenomics) designs and plans the distribution, price, and production of tokens for a tokenized ecosystem. It considers three design variables: market design, mechanism design, and token design.
Well-designed, well-developed tokenomics, with rules and incentives, determines the long-term success of crypto projects. Tokenomics is an integral part of a token-based system, and if poorly designed can lead to the ecosystem's collapse.
What is cryptocurrency and cryptoeconomics?
A cryptocurrency is an exchange mechanism, just like traditional currencies such as USD, but they are created to exchange digital information. It is a virtual currency secured by blockchain and cryptography. In a crypto ecosystem, tokens are more of a subset of cryptocurrency. So, every token is a cryptocurrency, but not every cryptocurrency is a token. Examples of cryptocurrencies are Bitcoin and Ethereum, which each have their own blockchain network.
Cryptocurrency economics (aka cryptoeconomics) is the economics of cryptography-based currencies and networks. Cryptocurrency economics focuses on creating economic incentives to direct the behaviour of buyers, sellers, service providers, and other parties in the network. It also attempts to measure and predict metrics such as user adoption, coin price, transaction volume, and services provided. Drawing on economics and game theory, it helps developers choose the most appropriate currency system parameters to generate the results they want.
Watch the video below to learn more about cryptocurrency economics and token economics on a technical level. Don’t forget to like and subscribe so you don’t miss important updates and latest videos.
What else did you miss?
What are the differences between tokenomics and cryptoeconomics?
Conclusion
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