Cryptocurrency tokens explained: types and examples
Cryptocurrencies are digital or virtual tokens that use cryptography to secure their transactions and to control the creation of new units. Cryptocurrencies are decentralized, meaning they are not subject to government or financial institution control. The most well-known cryptocurrency is Bitcoin, but there are many others, such as Ethereum, Litecoin, and Monero.
A crypto token is a unit of value that is used to represent digital assets. Tokens can be used to represent anything – from commodities to loyalty points to digital assets. There are different types of crypto tokens, and their use depends on the project or system they are associated with.
In this article, we will explain the different types of cryptocurrency tokens and give some examples of each. But first what is the difference between a cryptocurrency and a crypto token?
What is the difference between cryptocurrency and crypto tokens?
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Cryptocurrency is a digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of this security feature. A defining feature of a cryptocurrency, and arguably its most endearing allure, is its organic nature; it is not issued by any central authority, rendering it theoretically immune to government interference or manipulation.
A crypto token is a digital asset that is used to represent an investment in a project or company. A crypto token can be used to represent anything of value, such as a physical asset, a utility, or a voting right. Tokens can be used to raise funds for a project or company, similar to how a company would issue shares to raise capital.
The biggest distinguishing factor between the two is that cryptocurrencies are native to specific blockchains such as Bitcoin, Ethereum and Dogecoin. On the other hand, crypto tokens are built on these blockchains but they are not native tokens to the blockchain.
Types of Cryptocurrency tokens
- Platform token
- Utility tokens
- Security tokens
- Natural assets tokens
- Non-Fungible Tokens (NFTs)
- Reward tokens
Platform tokens definition
A platform token is a type of digital asset that is native to a particular blockchain or distributed ledger platform. Platform tokens are often used to power the applications and services that are built on top of the underlying blockchain platform. As such, they are often required for users to be able to interact with these applications and services.
Platform tokens typically have a number of features and characteristics that make them unique from other types of digital assets. For example, platform tokens typically have a built-in utility that allows them to be used within the application or service that they were designed for. Additionally, platform tokens often have a governance function that allows token holders to participate in the decision-making process for the platform.
So, what exactly is a platform token? Put simply, a platform token is a type of digital asset that is native to a particular blockchain or distributed ledger.
Examples of platform tokens include Bitcoin, Ethereum, Avax and Solana.
Utility tokens explained with examples
A utility token is a type of digital asset that gives holders access to a product or service. Unlike other types of cryptocurrency tokens, utility tokens are not meant to be used as a form of investment. Instead, they are designed to be used to purchase goods or services within a specific ecosystem.
One of the most popular examples of a utility token is the Basic Attention Token (BAT). The BAT is used to purchase advertising and attention-based services on the Brave platform. The Brave platform is a web browser that provides a better and more private browsing experience.
Other examples of utility tokens include Augur (REP), which is used to purchase predictions and services on the Augur platform, and Dentacoin (DCN), which is used to purchase dental services.
Other examples of utility tokens include Filecoin and Funfair Token.
What are Security tokens (with examples)
A security token is a digital asset that represents physical or virtual security. Security tokens are often used to raise capital for companies and projects. They are similar to traditional securities such as stocks and bonds, but they are traded on blockchain-based platforms.
Security tokens can represent a wide variety of securities, including equity, debt, derivatives, and even real estate. For example, a security token could represent a share of ownership in a company, a debt obligation of a company, or a contract for a future stream of payments.
Security tokens are subject to federal and state securities regulations. This means that they must be registered with the SEC and comply with all applicable laws.
Examples of security tokens include Polymath (POLY), tZERO (OSTK), and Harbor (HRB).
In the cryptocurrency world, a stablecoin is a digital asset that is designed to maintain a stable value. That is, the price of a stablecoin is pegged to a fiat currency or other asset, such as gold. This makes stablecoins a popular choice for investors who want to avoid the volatility of the cryptocurrency markets.
There are many different types of stablecoins, each with its strengths and weaknesses. For example, some stablecoins are backed by reserves of fiat currency, while others are backed by reserves of other assets, such as gold or diamonds. Some stablecoins are even backed by a basket of assets, which helps to reduce volatility even further.
Which type of stablecoin is right for you will depend on your investment goals and preferences. However, all stablecoins share one common goal: to provide a safe and stable investment option in the volatile crypto markets.
Examples of stablecoins include USDT, BUSD, and USDC.
Natural assets tokens (with examples)
Natural assets tokens are a type of cryptocurrency that represents a real-world asset, such as a barrel of oil or a landmass. The value of a natural assets token is backed by the underlying asset, which can be traded or used as collateral.
Natural assets tokens have the potential to revolutionize the way we trade commodities and other assets. For example, by tokenizing a barrel of oil, we can create a more efficient and liquid market for oil trading. Tokenization can also help to reduce fraud and corruption in the commodities markets.
Some examples of natural asset tokens include Earth Token (EARTH), Power Ledger(POWR), and SunContract (SUN).
Non-Fungible Tokens (NFTs) explained
Non-fungible tokens, or NFTs, are a new type of digital asset that have been gaining in popularity in recent months. NFTs are unique, in that each one is entirely unique and cannot be replicated. This makes them valuable in a way that other digital assets, like Bitcoin or Ethereum, are not.
NFTs have a wide range of applications, from digital art and collectibles to gaming items and even real estate. And because they’re still a relatively new technology, the possibilities for how they can be used are only limited by our imagination.
NFTs are stored on a blockchain, which is a distributed ledger that records all transactions. This decentralization makes NFTs more resistant to fraud and counterfeiting. NFTs can be bought, sold, or traded like other cryptocurrency assets, but their unique nature means they can also be used in a variety of other ways.
For example, NFTs can be used to represent ownership of digital art, land, or even real-world objects like cars or houses.
Reward tokens definition with examples
Reward tokens are a type of cryptocurrency token that is distributed to users in order to incentivize certain behavior. For example, a company may give out reward tokens to users who complete certain tasks or who refer other users to the company. The users can then redeem the tokens for goods or services from the company.
Reward tokens are similar to loyalty points, but they are digital and can be traded on cryptocurrency exchanges. Some companies have their own blockchain-based reward token systems, while others use existing cryptocurrency platforms such as Ethereum or Stellar.
One example of a reward token is the Basic Attention Token (BAT), which is given to users of the Brave browser for viewing ads. Users can then use the BAT tokens to tip content creators or to buy goods and services from Brave partners.
Factors to consider before investing in a cryptocurrency project
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Before investing in any cryptocurrency project, it is important to do your due diligence and research the team, technology, and tokenomics of the project. Here are a few key factors you should consider before investing:
– The team: Is the team reputable and experienced? Do they have a track record of success?
– The technology: Is the technology sound and scalable?
– The tokenomics: Is the token distribution fair and sustainable?
Investing in a cryptocurrency project is a risky proposition, but if you do your research and invest in a solid project, it can be a lucrative endeavor.
In conclusion, cryptocurrency tokens come in many different forms, each with its characteristics and uses. The most common types of tokens are utility tokens and security tokens, but there are also other types such as stablecoins and asset-backed tokens as we have already discussed.
Utility tokens give holders the right to use a product or service, while security tokens represent an investment in a company and give holders a financial stake in the company. No matter what type of token you are interested in, it’s important to know how the token works before you invest. Leave a comment down below and let us know your views on the topic. Also, remember to share with your friends on social media.
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