Oftentimes, people with little knowledge of cryptocurrency consider Bitcoin a synonym for cryptocurrency and end up believing that’s the only cryptocurrency around. However, this certainly is not true. There are at least four types of cryptocurrency based on their formulation, code design, application, and other such factors. These varying types of cryptocurrency are Coins, Tokens, and Altcoins, besides Bitcoin. So, let’s discuss the different types of tokens that are becoming the buzzing part of the cryptocurrency system ecosystem through this article.
These are like coupons or vouchers that are in the form of digital units represented in the value of blockchain. As the name suggests, these types of tokens provide certain special access or rights relating to the product and services and are operated by the token issuer. A person holding this token gain access by buying the token which can be further redeemed based on the applicable terms and conditions. Such as access to products or services at discounted prices. However, these are not under any financial regulation like cryptocurrency nor can be treated as investment products. Some popular utility tokens are Funfair, Brickblock, Sirin Labs Token, Golem, Basic Attention Token, etc.
These are the securitized tokens that get their value from some external assets that are primarily traded as financial instruments under centralized regulation. Thus, security tokens are used for securitizing properties, real estate, bonds, and currencies. These are issued through Security Token Offerings (STO) and are necessarily used where there is a need for instant settlement, divisibility of assets, transparency in management, etc. Alongside, these are categorized as Equity and Asset-backed tokens. A few examples of Security Tokens are Sia Funds, Science Blockchain, and BCap (Blockchain Capital)
Payment tokens are digital assets used for buying or selling goods on digital platforms without the need for any intermediary, unlike traditional finance and banking arenas. The majority of the cryptocurrencies and tokens fall into this category be they security or utility tokens. However, these cannot be used as investment securities and neither guarantees any access to products or services in the future. Monero, Bitcoin, and Ethereum are some examples of payment tokens.
Non –Fungible Tokens
It is considered a digital certificate of ownership that is unique, irreplaceable, and non-tradeable with another. They represent a work of art, audios, collectibles, paintings, virtual world, GIFs, digital content like tweets, fashion, music, academia, political items, films, memes, sports, etc on the blockchain network. The first NFT was created on the Ethereum blockchain in the year 2015. NFTs are making vibrant introductions in almost all industries be it fashion, lifestyle, gaming, health care, and more.
Decentralized Finance (DeFi) Tokens
These are the financial applications that are built on the blockchain to facilitate financial services and these apps are powered by the token economy. Thus, these tokens are programmable money that works on programmed logic to facilitate financial transaction flow and payments. Besides Ethereum other blockchains like Stellar, IOTA, Tron, Cardano, and Polygon support the DeFi tokens. The well-known DeFi tokens include Chain link, Polkadot, Aave, Solana, Uniswap, etc.
As the name suggests these digital tokens have a stable value which is pegged to the value of fiat currency such as the euro, dollar, and metals such as gold, and precious commodities. Thus, they help to get rid of volatility in digital assets. The most common popular stablecoins which are backed by USD in the ratio of 1:1 is Tether. Some other stablecoins are TruSD, GemiDollar, Paxos, Kitco Gold, DigixGlobal, Goldcoin, Ampleforth, DefiDollar, Frax, etc.
Privacy tokens are developed to enhance privacy in Bitcoin and mainstream crypto. Some privacy concerns it focuses on are security investigations, streamlining sensitive transactions, and reducing crimes and scams. To accomplish this goal this token use different methods such as anonymity technique like CoinJoin, coin mixing, and others. Monero, ZCash, Horizen, Beam, Verge, and Dash are the popular Privacy tokens in the blockchain ecosystem.
However, the list of cryptocurrency tokens is extremely extensive but these are the most popular tokens in the crypto ecosystem.