Types of Cryptocurrencies
TYPES OF CRYPTOCURRENCIES
To get a clear grip, you need to first understand the difference between a coin and a token. These two are often used interchangeably by newbies in the crypto space but mean different things.
Simply put, a coin operates on its own blockchain; they exist on their own independent ledgers. Eg. Bitcoin operates on the Bitcoin blockchain, Ether on the Ethereum blockchain. Other examples include XMR (Monero), XLM (Stellar), etc. Coins have the same features as money and can be used to purchase tokens. However, some coins have functions way beyond money.
Tokens, on the other hand, are digital assets that operate (are built) on another blockchain. Most cryptocurrencies (ERC-20 tokens) are created on the Ethereum blockchain owing to its smart contract feature. While tokens can also be used as means of payment, they allow for a number of functions like staking, right to a service, voting rights, etc within its own ecosystem.
Tokens are often distributed to the public through Initial Coin Offerings (ICOs) – a form of crowdfunding in the crypto space, as opposed to Initial Public Offerings (IPOs) in the traditional system. However, ICOs seem to have been quickly replaced by IEOs (Initial Exchange Offerings) – hosted by reputable crypto exchanges and no longer independently by the Project team. This has helped reduce scam projects in the rapidly evolving industry.
Tokens are classified into two: utility tokens and security tokens.
Utility tokens are tokens that have a particular use case such as granting access to products or services offered by a blockchain-based company. For example, if Opay had a token, it could be used to pay for rides at a discount. Although they can increase in value, they are not created to be an investment. A good example is the "DGTX" token that is compulsorily needed to trade on the Digitex Futures Exchange or Basic Attention Token (BAT) that can be used to interact with the Brave internet browser.
Security tokens represent an investment and derive value from an external asset that can be traded such as stocks. They are designed to be investments and therefore fall under the same regulatory oversight and scrutiny. Projects that issue security tokens must comply with federal laws or risk facing the consequences. Security tokens are issued and distributed in a process known as STO (Security Token Offering).
Investors holding security tokens get ownership of the company as well as receive dividends when the company makes a profit. However, Security tokens do not offer specific use cases as Utility tokens.
If you somehow saw this email in your “promotions” tab, simply tap the three dots at the top right this email you just read, click “move to”, then select “primary”.
This is very important so you might as well do it right away!