By
now you may have heard that cryptocurrencies are digital currencies that are
secured by encryption. But how many types of cryptocurrencies are there? It's
not just Bitcoin and Dogecoin that are making waves—in fact, there are
thousands of cryptocurrencies. There are 1583 cryptocurrencies listed on
coinmarketcap.com. This is more than all the different types of fiat currencies
in the world.
These
Cryptocurrencies can be classified in to four major categories include
utilities, payments, security, and stablecoins. There are also DeFi tokens,
NFTs, and asset-backed tokens. Among all cryptocurrencies, the most common are
utility and payment tokens. The other major types of cryptocurrencies are what
we commonly call app or platform cryptocurrencies. This type of crypto is built
on top of utility currencies. A good example is the Augur cryptocurrency that
started on the Ethereum network.
A Unique Set of Features
However,
cryptocurrencies have an important feature that distinguishes them from fiat
money and financial assets: they have a unique function of processing large
amounts of information: as mentioned earlier, cryptocurrencies are blockchain
networks.
Cryptocurrency
is like that. For example, although we have cryptocurrencies with smart
contracts that essentially work the same way, more and more keep emerging. What
they do is adapt elements to the protocol, and promise the next revolutionary
smart contract platform. Consider Ethereum the best platform for smart
contracts. There are now multiple platforms with tokens that run the same type
of network. NEO - Chinese Ethereum, Cardano - Japanese Ethereum, Stellar, EOS
to name a few are all competing to catch Ethereum.
Competitive
features in the cryptocurrency market include uninterrupted trading and mining
as well as high market capacity. This is due to the fact that when they enter
the market, cryptocurrencies do not take money from competing cryptocurrencies,
but create and attract additional funds, which contribute to the continuous
growth of the market. Each cryptocurrency platform tries to capture its share
of the market by introducing open technological and methodological innovations
in its systems. EOS offers the most advanced system to date, with great
potential for scalability and modernization of technical equipment. The key
criteria when buying cryptocurrency is the ratio of potential risks to
potential benefits for investors from ownership. The material benefit or
security of property is provided not only by the exchange rate difference of
the digital currency but also by minimizing the costs associated with using the
system.
Another
feature is the ubiquity of blockchain usage. In other words, realizing that
this methodology can be applied not only to payment systems and digital
currencies, but also to enhance the efficiency and security of most internal
and inter-organizational operations of companies.
The
second feature is as a unit of account functions. Bitcoin does not seem to
establish itself as a unit of account or store of value. But currently, there
is evidence that cryptocurrencies are used as a unit of account. The
methodology is to value goods and services based on cryptocurrency exchange
rates. For example, sellers who accept cryptocurrency payments will quote a
price in fiat currency, based on the exchange rate of prices in cryptocurrency
at a given time.
Benefits and Drawbacks
It cannot be denied that security tokens have proven useful and
successful. Many crypto start-ups have benefited from the issuance of utility
tokens, and buyers always stand to make a healthy profit in such cases. But
utility tokens have their pitfalls and uncertainties, so it pays to be vigilant
if you're interested in this type of cryptocurrency.
One thing to remember about utility tokens is that they are not as
strictly regulated as security tokens, which exposes buyers to the risk of
financial loss. If the company that issued the utility tokens fails or doesn't
perform as expected, it could lead to financial losses for those who decided to
buy a share during the initial coin offering.
The best cryptocurrency that the utility offers is ETH: the digital currency
of the Ethereum blockchain. It's the second most popular cryptocurrency after
Bitcoin, but if you ask me, ETH could gain enough traction to overtake BTC. On the other hand, NFTs are digital collections (such as music, artwork and tweets) that
often run on the Ethereum network.
It is also worth noting that the majority of utility tokens are ERC-20
tokens, meaning they are created and exist on the Ethereum blockchain. The
biggest downside to Ethereum is its gas fees, which can be quite hefty. This
can definitely be considered a frustrating factor when selling utility tokens,
as a portion of your profits will be deducted to pay for those gas fees. There
are ways to lower your gas bill, but none are guaranteed to work all the time.
Then there are those that have a utility function. It is a group of
cryptocurrencies developed as infrastructure. They allow other cryptocurrencies
to be created on top of their networks. The best example is Ethereum with its
Ethereum Virtual Machine, which allows the creation of many token coins on its
network.
Conclusion
Thousands of
cryptocurrencies are circulating in the crypto market now a days. Crypto can be classified into different categories, like DeFi, NFT,
utility tokens, store of value tokens like bitcoin and Litecoin, and yield
farming tokens. The other major types of cryptocurrencies are what we generally
refer to as app or platform cryptocurrencies. This type of crypto is built on
top of the utility currencies.
Utility tokens are user tokens or app coins. This is a
token that is given out during crowd sales as a project executes an ICO. When a
company creates a utility token, it means that it is essentially creating a
form of a digital coupon that can be redeemed in the future for discounted fees
or special access to a product or service. Unlike security tokens, utility
tokens are not used as investments as they can be exempted from the federal
laws governing securities if they are properly set up. Some of the Examples of
utility tokens are File coin, Sia coin, Civic, etc.
The second major type of cryptocurrency is the Utility
Token. Tokens are any cryptographic asset that runs on top of another
blockchain. Ethereum network was the first to incorporate the concept of
allowing other crypto assets to piggyback on its blockchain.
All of the different types of cryptocurrency tokens
explained above serve specific purposes, and the uses for some, including the
versatile Dai stablecoin, can even overlap. Defining each type is an important
step toward offering a deeper understanding of how blockchain technology is
used by organizations such as Maker to help individuals and businesses realize
the advantages of digital money without experiencing volatility.
Utility tokens, otherwise known as app coins or user tokens, are tokens
that give holders a product, service, or even both. They often serve as a way
to access a network or platform. Utility tokens are generally unregulated and
help create an internal economy within the blockchain of a certain project.
If you want to learn more about this topic, feel free
to leave your valuable comments. We are happy to assist you. All the best for
your future.
(All the material in this article is only the author's opinion, and could
not be considered as "Financial Advice")
Key Words:
Utility based types of Cryptocurrencies
Types of Cryptocurrencies
Types of Crypto Tokens
Types of Crypto wallets
Types of Crypto Coins
Types of Crypto Mining
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