Crypto Tokens vs. Cryptocurrencies vs. Crypto Commodities

The terms crypto tokens, cryptocurrencies, and crypto commodities are often used interchangeably, but each has distinct meanings. This article clarifies these concepts, their differences, and why understanding them is critical for investors.

Key Takeaways

• Crypto tokens are any tokens created using a blockchain, encompassing cryptocurrencies, non-fungible tokens (NFTs), crypto commodities, and security tokens.
• Cryptocurrencies are crypto tokens designed for use as payment methods or speculative investments, typically assigned an exchange value.
• Crypto commodities are crypto tokens representing a physical commodity on a blockchain or, as defined by the Commodities and Futures Trading Commission (CFTC), any virtual currency.
• Valuation depends on the use case, market traction, intended functionality, and investor sentiment.

What Are Crypto Tokens?

A token is a representation of something else, such as data, credentials, or permissions within a database or distributed ledger. Tokens issued through a blockchain are collectively called crypto tokens. This broad category includes:

• Cryptocurrencies
• Non-fungible tokens (NFTs)
• Crypto commodities
• Security tokens
• Any other virtual asset linked to a blockchain

Examples include Bitcoin (BTC) and Ethereum (ETH), which are native tokens of their respective blockchains.

Cryptocurrencies

Cryptocurrencies are a type of crypto token designed primarily as payment methods or speculative assets. Although often used as a blanket term for any token with market value, cryptocurrencies have specific purposes and characteristics.

Examples of Cryptocurrencies:

• Bitcoin (BTC)
• Ethereum (ETH)
• Dogecoin (DOGE)
• Solana (SOL)
• Cardano (ADA)

These are also referred to as crypto coins, coins, tokens, or virtual currencies. As blockchain technology evolves, so do the definitions and uses of cryptocurrencies.

Crypto Commodities

There is ongoing debate about what constitutes crypto commodities, but two primary definitions are widely recognised:

1. Virtual currencies and derivatives as commodities: The CFTC defines all virtual currencies and their derivatives as commodities, falling under its jurisdiction. By this definition, Bitcoin and Ethereum are considered crypto commodities.
2. Tokenized representation of physical assets: When a token represents the value of a physical asset (e.g., oil or gold), it becomes a tradable crypto commodity. For example, if one barrel of oil were tokenized on a blockchain, that token would qualify as a crypto commodity unless it meets the definition of a security token.

Example: Tokenizing Oil

In the physical world, oil is a commodity with an associated cost and use case. If one token on a blockchain represents one barrel of oil, it becomes a crypto commodity tradable on digital markets.

Why These Terms Matter

For investors, distinguishing between crypto tokens, cryptocurrencies, and crypto commodities is essential to understanding valuation and investment opportunities. These terms are often used loosely, creating confusion among those new to blockchain technology.

Key Valuation Factors:

• Crypto tokens: Broad category that includes any blockchain-based asset.
• Cryptocurrencies: Valued based on market traction, supply, network difficulty, and speculation.
• Crypto commodities: If defined by the CFTC, valuation follows market prices. For tokenized physical assets, value is derived from the price of the underlying asset.

Frequently Asked Questions

What Is a Crypto Token?

A crypto token refers to any asset issued on a blockchain, including cryptocurrencies, NFTs, and security tokens.

Is Cryptocurrency a Good Investment?

Cryptocurrencies can be a good investment for those who enjoy speculation and can tolerate high risk. However, they are not typically suited for building long-term wealth, retirement savings, or low-risk portfolios.

Is Ethereum a Commodity?

Yes, the CFTC considers Ether (ETH) a commodity because it is a virtual currency used within the Ethereum blockchain for building decentralised applications.

The Bottom Line

While the terms cryptocurrency and crypto commodity are sometimes used interchangeably, they are subcategories of the broader concept of crypto tokens. How these assets are valued depends on their use, popularity, and trading activity. For investors, understanding these distinctions is critical for navigating the evolving world of blockchain technology and digital assets.