Types of cryptocurrency. Part 2.

Types of cryptocurrency. Part 2.

In the previous part of the article, we talked about Bitcoin and altcoins. In this part, we will talk about the third type of cryptocurrency - tokens.

Crypto tocs are usually designed to run an ecosystem, related to crypto technologies. By analogy with bonus miles in airlines: these miles do not buy, for example, bread, but you can buy plane tickets, and the more miles accumulated, the better for the airline ecosystem.

Crypto tocers don't necessarily have their own blockchains and can be developed on top of other platforms.. Compared to crypto coins, which play the role of currency, tokens often perform a specific function.

According to functions, that execute tokens they can be divided into several Categories.

Exchange tokens

Exchange tokens – digital assets, in which you can invest or use within the ecosystem of the exchange, receiving certain privileges. Especially profitable is their purchase of themes., who is a regular user of the exchange – trades or exchanges cryptocurrencies. Thanks to the use of exchange tokens, you can significantly reduce trading and other commissions.

Maybe, the most famous and most liquid of all exchange tokens is the native BNB token for the Binance exchange.

DeFi Tokens

DeFi (decentralized finance, decentralized finance) – a set of services and applications, developed using blockchain, cryptocurrencies or tokens and smart contracts. These services are integrated into a single network, offering users services, which are usually provided by banks and other financial institutions, including lending, borrowing and trading within decentralized structures. Any Internet user can interact with the ecosystem and manage assets. It's kind of an alternative banking sector..

Web3 tokens

Most of today's most commonly used internet platforms are controlled by only a few influential companies., for example Google, Facebook, Amazon, Microsoft, who profit from users and their data. Compared to a traditional centralized network, owned by several giant corporations, web3 tokens create a new Internet standard, they are designed on top of crypto platforms. They reward users of their platforms with web3 crypto tokens for contributing to the development of an alternative trend.. For example, ThreeFold token is awarded to participants, who authorized their node in the ThreeFold ecosystem, which advocates a globally-corporation-free Internet, and in the decentralized Filecoin project, network users store the data of other users for a fee in Filecoin tokens.

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ERC20 Tokens

Certain standards are required to create coins. It's like issueing a credit card.. Each card has a black stripe on the back, and most modern cards also have a chip.. Card Number, validity period and security code are generally accepted standards for cards. ERC20 – this is the standard for creating tokens on the Ethereum blockchain. It includes a list of rules, which tokens must correspond to.

Security Tokens (Security tokens)

It's a digital crypto asset, created on the blockchain, which is a certain share of ownership of a financial instrument or part of a company. They can be issued by both business and government., and serve the same purpose, that and shares, bonds, etc.. The most striking example is TON, cryptocurrency famous messenger Telegram with encryption technology. Important, that investment tokens give the owner the right to subsequently receive a share of the profits.

ICO Tokens

ICO tokens are virtual shares, which are issued by the company to attract additional investments, it is a source of capital for start-up companies. An interested investor can buy an offer and get a new crypto token, issued by the company as an exchange. Thanks to the fundraising company, you can accumulate enough funds, to support the development process. These tokens are usually exchanged for BTC and ETH.. Mainly because, that they are easier to exchange for other currencies, and market liquidity is usually higher.

ICO tokens are classified into several main groups:

Equity tokens. Investors, buying some part become a co-owner of the project and in the future receive dividends for that, that invested their funds in the project at the start. It's kind of a stock., similar to themes, which have offline companies.

Utility tokens. They serve the platform and give the user a certain advantage in the form of internal currency., points or reputation points, votes, etc.

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Application tokens. The simplest example of such projects is the in-game currency.: for example, Nexium game project Beyond the Void, or STORM of the advertising platform of the same name. Their main purpose – act as a means of payment for the user, who is interested in purchasing or expanding the available functionality of the application used.

Asset-backend tokens or commodity tokens. This group is focused on offline projects, that produce specific goods or services. This is a modified version of crowdfunding. Company, issuing token, has a legally confirmed obligation to deliver the goods or pay their real value, in exchange for digital means of payment

At the moment, there are about 5000 various coins. When cryptocurrency will be more popular, there will be even more altcoins and tokens. In the end, understanding these basics will be very helpful, to help you make the best choice for your future investments.

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