There was a time in history when if you wanted something, you had to exchange an item with its owner for it. That was called trade by barter. It fell out of use when it could not be relied upon as a proper means of exchange. Not long from then, cowries, gold, silver, salt and precious stones became the items we attributed value to and if you wanted something, you would have to make that exchange with a measure or some pieces of these valuable items. Most recently the value for exchange became coins and paper money; dollars, pounds etc and if you need something, as long as you have the equivalent sum of money for that item, you are able to get it, otherwise you cannot. Gradually, we have moved to a cashless system where one can conveniently buy items with a credit/ debit card and so money changes hands without either party seeing any physical cash, only records of the transaction.
Cryptocurrency is a digital/ virtual means of exchange, it is a form of financial value or asset that is neither gold nor paper, it does not need a bank to verify or store, has no use of cards to make transactions and it is transferred directly and easily between two people. It is represented by some sort of code that comprises letters and numbers.
Cryptocurrency does not manifest from thin air, real currency is exchanged for cryptocurrency which can be used to invest and make payments online without geographical restriction anywhere in the world. Units of cryptocurrency are created through a process called mining. This process also accounts for the verification of transactions through solving complex mathematical problems. Solving these problems is akin to auditing a transaction and the first computer to solve it gets a reward in form of a token and the process begins again.
Dealing with digital currency is almost the same process as dealing with cash you know. The difference here is that with cryptocurrency, non of the activities are physical and there are no go-betweens like banks, cards and POS systems.
As a paper or polymer bill represents physical cash, each of them has a serial number on them. However, each unit of cryptocurrency is represented in serial numbers alone. Imagine that you were allowed to buy things with just the serial numbers on your current cash, or share it with the bank or individuals without having the paper equivalent, that will be you running on cryptocurrency except in this case thee will be no need for a bank.
The Process Breakdown Of Cash/ Fiat Currency VS Cryptocurrency
Account opening = creating a crypto wallet
You decide which bank you wish to open an account with based on certain criteria; popularity, ease of transactions, good customer service, strong online presence, interest on savings, obtaining business loans and a host of other reasons. The same consideration goes into choosing a crypto wallet to own.
Account number = Wallet address
In a traditional banking system, your account number is your unique identifier through which you are able to make transactions. While with crypto, the wallet address is the address with which you make transactions/ investments and to which exchanges from and to other parties can be made.
Transfer to/ from a bank account = Peer to peer transactions
With the current banking system, one makes a transaction with someone using the same bank or a different bank. The cost of activities would usually vary depending on the amount and bank. Cryptocurrency eliminates the hassle of excessive charges and the intermediaries; banks, POS, payment platforms or debit/ credit cards, allowing direct transfers to who you wish to deal with.
There are well over ten thousand different cryptocurrencies, just as you have paper currencies around the world, but they all function in different ways and use cases. Some of the most popular ones are Bitcoin, Ethereum, Litecoin, Solana, Dogecoin etc. each one is either a token or a coin, and does not function in the same way.
Tokens and coins are alike in a lot of ways, they both represent value, can be transferred, used for payments and can be swapped for each other. While all coins are tokens, not all tokens are coins, this distinction is based on how they are used (utility).
Tokens represent, guarantee or indicate something, it is proof of ownership that something can be obtained or redeemed with it. Take tokens to mean a form of exchange like traditional money, gift vouchers, loyalty cards, tickets, voting rites, gate passes etc. the value of each of these will be relevant in the context of the economy or environment in which it is issued. They are digital assets or access right tools that allow more transparent, efficient, and fair interactions between market participants at a low cost. Tokens are not all-encompassing, they have to be compatible with the wallet you handle on a particular blockchain network. This form of digital asset is not mined like the coins but is created and issued on or from different blockchain networks. We can say they are relatives of a coin.
A coin on the other hand will function basically as traditional money. This digital currency can be exchanged for tokens and every other commodity that functions with its blockchain network.