The Different Types of Crypto Tokens: A comprehensive guide

Welcome to the brave new world of crypto! There is a good chance you have heard of Bitcoin, even if you have never heard of Ethereum. Isn’t it interesting to know that there are several other types of cryptocurrencies available? This dynamite crypto space offers a wide variety of Crypto tokens, from web3 tokens to ICO tokens, to ERC20 tokens, to stablecoins.

Bitcoin prices continue to rise, especially after Elon Musk changed his Twitter bio to #bitcoin. In the coming years, the crypto market will continue to grow into something even more substantial. 

Check out the different types of cryptocurrency if you’re curious about what comes after Bitcoin. Additionally, you may gain some insight into diversifying your investment portfolio.

Types of Cryptocurrency Tokens: An Overview

Types of Cryptocurrency tokens issued by blockchain projects can be traded inside the ecosystem of the blockchain project, issuing them as fungible digital assets. By describing them in terms of their service to the end user, they are best described. Cryptocurrency tokens are like the foods that sustain blockchain ecosystems. 

Depending on how the token is used, it provides unique features. These categories are not mutually exclusive, as a token can fall into more than one.

1. Tokens for platforms

With platform tokens, decentralized applications (dapps) can be delivered via blockchain infrastructures. Although Dai qualifies as a stablecoin due to its soft peg to the US Dollar and Crypto Token Development Cost maintenance mechanisms integrated into smart contracts, it is also considered a platform token due to its Ethereum-based design.

A complete explanation of the different types of cryptocurrency must include the Dai stablecoin.

2. Tokens of security

Regulatory concerns led to the emergence of the term “security token”. U.S. regulatory authorities, such as the SEC, attempted to define cryptocurrencies using terminology that didn’t conflict with existing legal terminology. 

Generally speaking, securities are instruments issued by companies, trusts, governments, or other legal entities to represent ownership interests, debts, rights to earnings, property distribution rights, and other rights. Among the types of securities are bonds, debentures, notes, options, shares, and warrants, which can be traded among investors and freely transferred. The term security token refers to a token that represents real-world securities directly on the blockchain or serves a similar function for digital assets and blockchain projects. For Security Token Development, contact us.

3. Tokens for transactions

Transacting with transactional tokens is like exchanging goods and services for units of account. In some cases, these tokens offer additional benefits, but they often function like traditional currency. A decentralized cryptocurrency, like Bitcoin or Dai, provides users with the capability of executing transactions without the involvement of a traditional intermediary or central authority, like a bank or payment gateway. Dai offers other networks transactional performance in addition to its function as a currency. With xDai, POA Network created an inexpensive, fast Dai-like transactional token that lives on a sidechain. 

4. Tokens of utility

In order to access the services of a blockchain protocol, utility tokens are incorporated into the protocol. Unlike security tokens, they are not designed for direct investment, but rather for payments within their ecosystems. Platforms and utility tokens are synergistic, since platforms provide security for utility tokens, whereas tokens provide the network activity necessary to strengthen platforms.  In Axie Infinity, players on the economy, ensuring they have a stable in-game currency thanks to Dai. To provide a better user experience, other projects, including Cryptocup, utilize Dai stability. 

5. Tokens for governance

There is a need to refine the decision-making processes around decentralized protocols as they continue to increase and evolve. Using on-chain governance, all stakeholders can collaborate, debate, and vote on how a system should be managed. Voting systems based on blockchain are often powered by governance tokens, which are used to signal support for proposed changes and to vote on new proposals. MKR is the governance token in the Maker Protocol.

Tokens and Coins: What’s the Difference?

Cryptocurrencies can be divided into three types. Tokens, altcoins, and bitcoin are all included in this category. 

Bitcoin

The first electronic cash independent of governments or banks, Bitcoin (BTC), was created in 2008 by an anonymous developer known as Satoshi Nakamoto. With it, you can make online payments with a lower transaction fee, and there is no central server involved. 

The balances of bitcoins are maintained on a decentralized public ledger system known as a blockchain, not in physical form. Public and private keys are used to decrypt the encryption of these Bitcoin token balances. In simpler terms, the public key is like your bank account number for sending and receiving bitcoins. You can authorize bitcoin transactions with your private key, which is a secret key.

Altcoins

The only cryptocurrency at the beginning was Bitcoin, but later, other projects began to emerge. Thus, altcoins were born. Litecoin, Ripple, Bitcoin Cash, or Monero are some of the cryptocurrencies you might have heard of. These and many others were born from the native platforms and blockchains of their native countries, and all of them differed from Bitcoin.

According to the developers of these projects, newly-built coins such as Fantom are designed for a single-purpose use case and could be better than Bitcoin.

They changed the rules in order to compete with Bitcoin by appealing to different types of users. However, even after all these years, Bitcoin remains the market’s king, despite some of them challenging him. Altcoins, or alternative coins, are also now popularly referred to as all the other types of crypto coins.

Tokens

It is now common for crypto tokens to be developed as a way to kickstart the crypto ecosystem. It’s almost like earning bonus miles. The more miles you have, the better it is for the airline’s ecosystem because you can’t buy a loaf of bread with accumulated miles. With crypto tokens, the same approach works!

Conclusions

In addition to being vast, the world of cryptocurrencies is constantly evolving. The main types of tokens are as follows:

  • Blockchain-based apps are supported by platform tokens. 
  • Physical or digital assets are represented by security tokens.
  • In exchange for goods and services, transactional tokens are used as units of account.
  • A utility token is used to access a protocol’s services and is integrated into the protocol.
  • Voting systems based on blockchain are fueled by governance tokens.

Various cryptocurrency tokens serve different purposes, and some, such as the highly versatile Dai stablecoin, can have overlapping uses. Identifying each type is the first step in gaining a deeper understanding of how Cryptocurrency Token Development companies like comfygen use blockchain technology to help individuals and businesses benefit from digital money without experiencing volatility.

For more info on the Cost to build Crypto Tokens, let’s get connected.

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