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Today, I’ll be sharing the total five types of cryptocurrencies you must know about wisely investing in crypto. But before we discuss cryptocurrency types, let’s first understand the difference between coins and tokens in crypto.
Coins vs Tokens
So, coins are assets on their native blockchain. In contrast, tokens are assets foreign to the blockchain they live on. Examples of coins are Bitcoin on the Bitcoin blockchain and Ether on the Ethereum blockchain. Examples for tokens include Uniswaps or “UNI” token and Chainlink or “LINK” token used on the Ethereum blockchain.
Please keep in mind that the two terms are used interchangeably in specific conversations, publications, and videos. And while the distinction between coins and tokens is technical, we can group tokens and coins by their intended usage and while there are many crypto types, let’s start by discussing each Types Of Cryptocurrencies, one by one.
1) What are Security Tokens Explained
1. Security Tokens Here, by “security,” we mean it as a tradable financial asset. The Howey-Test is used to help us tell if an investment is a security or not. As per US Securities Act, a security is defined as, A contract, transaction or scheme whereby a person invests their money in a common enterprise and is led to expect profits solely from the promoter’s efforts or a third party.
Confused? Let’s simplify them with a set of questions to consider, like,
- 1. Was there an investment of money?
- 2. Was the money invested in a common enterprise?
- 3. Was there an expectation of profit?
- 4. Are the profits solely from the efforts of the promoter or a third party?
Examples for such security tokens can be found by looking for security token offerings (STOs) on icoholder.com and coincodex.com. Bitcoin is not a security token since the funds are not invested in a shared company to respond to a widely debated issue.
Types of Security Tokens Crypto
Further, security tokens can be divided into two types.
- Equity Tokens
- Asset-backed Tokens
2) What are Equity Tokens Explained
The first one is Equity Tokens. These are the type of security tokens that allow the holders to have some ownership rights over something. Some examples of equity tokens include “The Elephant Private Equity Coin” and “Recovery Right Token (or RRT).”
3) What are Asset-Backed Tokens Explained
Further, the second one is Asset-backed Tokens. Here, the tokenization of assets makes them tradable. Instead of trading the asset itself, you trade the token, which is very similar to paper money we use today: Instead of trading gold, you trade paper representing a certain amount of gold.
The issue with Asset-Backed Tokens: But, the problem with asset-backed tokens is the lack of oversight. And of course, the issuer of the token can claim that the asset is backed by anything, but without actual checks, this claim isn’t worth anything significant. Also, for your knowledge, here’s are some assets that can be tokenized: –
1) Precious metals… E.g., PaxGold (PAXG) and Digix Gold Token (DGX) are backed by gold – Company shares: Here, instead of trading company shares via well-known exchanges, they could be traded as crypto tokens.
2)Liquid commodities: … For example, The PetroDollar (XPD) is backed by oil and mineral reserves.
3)Real estate: There are several tokens associated with real estate, as well as various nations that represent real estate as a crypto token. The IHT Coin appears to be moving in this direction, but it also gives the feeling that it is not yet ready. The following item on the list is
3) What are Utility Tokens Explained
As security tokens are traded with the expectation to get direct profit from them, in contrast to these, utility tokens are traded with the expectation to serve some essential purpose or get some utility out of them. For example, a FIL / SC token can store a file.
And The CVC (Civic) token can be used to verify a user’s identity. In the real world, utility tokens include gift cards and public transit tickets.
And other examples for utility tokens are the Basic Attention Token and the Golem Token.
4) What are Non Fungible Tokens Explained
Tokens That Aren’t Fungible (or NFTs) All currencies and the majority of tokens are interchangeable. If you have many one-dollar bills, it makes no difference which one you pick to pay for a snack. If you acquire collectibles like art, comic books, stamps, or baseball cards, it does matter which one you have.
No Van Gogh is the same as any other Van Gogh, as we all know. CryptoKitties is the digital counterpart of this. The concept is that you — and only you — can have digital worth.
This trait is particularly appealing in computer games because players already pay a high price for uncommon objects within the game. Putting things on the blockchain provides the players more control over their acquired goods, and it may even be possible in the future to exchange the items between games. What if, you say?
Hey hey, Hold on! Wanna know more about NFTs and Metaverse? we have well-written articles you must not miss them! have a look.
- What Are NFT? Non-Fungible Tokens Simplified In 2022
- Make Huge Millions Investing In Crypto Games & NFTs In 2022
- The MetaVerse & NFTs Combined Going To Explode Crypto Gaming 2022
- $GARI Token: First-Ever Social Crypto Token In India 2021
- 7 Best NFT Marketplaces To Buy/Sell On ETH & Solana – 2021
5) What are Stablecoins Explained
Last but not least in our ( Types Of Cryptocurrencies ) is Stablecoins. They are digital representations of fiat currencies. They fall into one of these three groups: –
1) Fiat-collateralized, This coin is supported by fiat money. Tether (USDT) and the Gemini Dollar are two examples (GUSD).
2) Crypto-collateralized, this cryptocurrency is backed by another cryptocurrency. An example is DAI.
3) non-collateralized stablecoins rely on a smart contract to buy/sell the stablecoin to keep the price constant. Interestingly, several stablecoins are not coins but tokens.
Stablecoins vs Stabletokens
TerraUSD and Steem Dollars are two instances of true stable coins.
Tether and USD Coin are two instances of “stable tokens,” as both are ERC20 tokens on the Ethereum network.
Ending Note on Types Of Cryptocurrencies ( Important )
As a key takeaway, I recommend you go through my article on tokenomics to understand the subject more deeply and widely! Lastly, to get a rough understanding of a crypto project, you must ask the following questions before taking that leap of faith:
- Is it a token or a coin?
- Which blockchain is utilized if it’s a token?
- Is the initiative starting as an Ethereum token with the intention of transitioning to their blockchain over time?
This might provide you with an idea of what kinds of security risks you should be concerned about, where the majority of the labour would be distributed, and if the high gas rates of Ethereum and Ethereum 2.0 were appealing for that project or not.
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Choose one of the following categories/groups: digital currency, exchange token, smart contract blockchain, NFT, asset-backed token, utility token, or something else. The response may have an impact on rules and should assist you in understanding how the project may deliver value to its users.
With that, I hope this article was helpful and added some knowledge more about cryptocurrency and its types to you. That’s all with ( Types of Cryptocurrencies ), will see you in the next one! Till then, CYA and DYOR ( Do your own research ), of course!
