Tokens, chains, and protocols

Basic concepts of crypto

Dec 16, 2022
In the world of cryptocurrency, there are many terms that are thrown around and can be confusing to those who are new to the space. One such set of terms is "token," "chain," and "protocol." While these words are often used interchangeably, they actually refer to three distinct concepts in the world of cryptocurrency.
A token is a digital asset that represents a certain value or utility. In the context of cryptocurrency, tokens are often used to represent a certain amount of a particular coin or to represent a certain function within a blockchain. For example, the Ethereum network has its own native token called Ether, which is used to pay for transactions on the network. However, the Ethereum network is also home to many other tokens, such as stablecoins, which are pegged to the value of a particular asset (like the US dollar), or tokens that represent a share in a particular company.
A chain, on the other hand, refers to the underlying technology that powers a cryptocurrency. A blockchain is a decentralized, distributed database that records transactions on multiple computers, making it nearly impossible to alter or forge. Cryptocurrencies like Bitcoin and Ethereum use blockchains to record their transactions, and each "block" in the chain contains a record of multiple transactions. The chain is secured through the use of complex cryptographic algorithms, which make it extremely difficult to hack or alter the records on the chain.
Finally, a protocol refers to the set of rules that govern a particular blockchain or cryptocurrency. These rules can include things like how transactions are processed, how new blocks are added to the chain, and how consensus is reached among the network participants. Different protocols can have different characteristics and offer different benefits, such as faster transaction times or higher levels of security. Understanding the difference between these three concepts is important for anyone interested in the world of cryptocurrency.