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The Different Types of Cryptocurrency Tokens Explained

The article was written By Mickael Mosse — Blockchain and Cryptocurrency Expert

Introduction

In the race for mass adoption of cryptocurrencies, the field is filled with thousands of projects seeking to apply blockchain technology to a variety of business and consumer needs. In the past year alone, the market capitalization of the cryptocurrency industry has increased substantially. And, as if to highlight the nascent potential of cryptocurrencies, Facebook’s June 2019 announcement of its planned stablecoin, Libra, piqued the interest of many people, including critics who previously wanted nothing to do with the digital currency.

However, as Facebook quickly discovered, its announcement raised more questions than it answered. The already existing crypto community and regulatory bodies were quick to point out the differences between the various types of cryptocurrencies based on their uses. As a result, much of the public is struggling to understand not only how use cases relate to their lives, but also the terminology surrounding use. For example, people first heard about cryptocurrencies referred to as “coins” and “tokens.” Such terms may seem interchangeable to newcomers, but there is a clear distinction between the two, and this is the way they are used: Coins, including MakerDAO’s popular Dai stablecoin, which is backed by excess collateral,

A categorization system has materialized to explain the different types of cryptocurrencies and help people navigate the environment. A complete understanding of crypto begins with a review of the most common token types:

Platform Tokens

Security Tokens

Transaction Tokens

Utility Tokens

Governance Tokens

An overview of the types of Cryptocurrency Tokens

Cryptocurrency Tokens are fungible digital assets that can be used as a medium of exchange (traded) within the ecosystem of the issuing blockchain project. They are best described by how they serve the end-user. Think of tokens as the food that nurtures blockchain-based ecosystems. Each type of token provides unique characteristics based on its usage. However, a token can fall into more than one category, so these groups are not mutually exclusive.

1. Platform Tokens

Platform tokens use blockchain infrastructures to create decentralized applications (dapps) for different uses. For example, although Dai is categorized as a stable coin due to its parity with the US dollar and its price is maintained through mechanisms built into smart contracts, it can also be classified as a platform token because it is built on the broad blockchain. of Ethereum.

Platform tokens benefit from the blockchains on which they are built, obtaining greater security and the ability to support the activity of transactions. Platform tokens span a wide range of use cases, from serving for video games and digital collectibles platforms (CryptoKitties!) To global advertising and market industries.

2. Security Tokens

The term “security token” was born as a result of growing regulatory concerns. Regulatory authorities, such as the U.S. Securities and Exchange Commission, sought to specify cryptocurrencies using terminology that would not conflict with existing legal definitions. says Mickael Mosse

Generally, security or guarantee is an instrument issued by a company, trust, government, or other legal entity that commemorates a proprietary interest and provides evidence of a debt, profit-sharing right, a distributional property right, or other. similar legal rights. Securities types include but are not limited to, bonds, debentures, notes, options, stocks, and orders, and can be traded between investors or freely transferred. Although they are not yet ubiquitous, security tokens are tokens that serve as direct representations in the real-world value chain or tokens that are on-chain instruments that serve a similar purpose to blockchain projects and / or digital assets.

Security tokens can represent property interests. For example, Meridio platform investors can seamlessly trade tokens representing real estate stocks and pay in Dai, while Fluidity Factora allows people to invest in property in Brooklyn, New York, paying with Dai.

In the event that a token represents ownership of an off-chain asset, such as real estate, equipment, bills payable, or a business, similar to a stock, the value of the security token is directly related to the value of the asset. , the more valuable the asset has, the more valuable the token has. you may watch a video on Mickael Mosse youtube channel know more about crypto and blockchain.

3. Transaction Tokens

Transaction tokens are used to carry out transactions, serve as units of account, and are exchanged for goods and services. These tokens usually work like traditional coins, but in some cases, they provide additional benefits. For example, with decentralized cryptocurrencies like Bitcoin and Dai, users can transact without a traditional intermediary or central authority, such as a bank or payment gateway. In addition to functioning as a currency, Dai offers transactional performance to other networks. For example, POA Network created xDai, a transaction token like Dai that lives on an alternate chain, allowing for faster and less expensive transactions.

Not all transaction tokens are coins. Global supply chains and other industries use transaction tokens to apply the immutable nature of the blockchain and the flexibility of smart contracts to their operations. keep in touch with mickael mosse on social media

4. Utility Tokens

The utility tokens are integrated into an existing protocol in the blockchain and are used to access the services of that protocol. They are not created for direct investments like security tokens, but they can be used to pay for services within your specific ecosystems. The relationship between the platform and a utility token is synergistic, the platform provides security for the utility token while the token provides the necessary activity on the network to strengthen the economics of the platform. For example, Dai was integrated into Axie Infinity, a digital pet universe with a player-owned economy, which provides players with stable in-game currency. Other projects, like Cryptocup, take advantage of Dai’s stability to provide a better experience for their users.

5. Governance Tokens

As decentralized protocols continue to proliferate and evolve, the need to refine the decision-making processes in your environment is critical. Governments in the chain allow stakeholders to collaborate, debate, and vote on how to manage a system. Governance tokens power blockchain-based voting systems, as they are often used to indicate support for proposed changes and to vote on new proposals. In the Maker Protocol, the governance token is MKR.

When explaining the different types of cryptocurrency, utility tokens, such as in-game crypto, must be examined.

Conclusions

The world of cryptocurrencies is vast, and more importantly, it continues to evolve. To summarize, these are the main types of tokens:

Platform tokens support dapps built on the blockchain.

Security tokens represent legal ownership of a digital or physical asset.

Transaction tokens serve as units of account and are exchanged for goods and services.

Utility tokens are built into an existing protocol and are used to access the services of that protocol.

Governance tokens power blockchain-based voting systems.

All of the different types of cryptocurrency tokens explained above serve specific uses, and the uses for some, including the versatile Dai stablecoin, may even overlap. Defining each type is an important step in offering a deeper understanding of how blockchain technology is used by organizations like Maker to help people and businesses realize the benefits of digital money without experiencing volatility.

To learn more about Dai, visit the Mickael Mosse website, and join the discussion on the Mickael Mosse FB Page.

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