By Hannah Parker
While Bitcoin is the most popular digital asset in the market, the original cryptocurrency is not the only in the industry. In fact, there are many different kinds of cryptocurrencies. The different kinds of cryptocurrencies can be categorized by function, use-case, purpose, and design. In this article, read about the different kinds of tokens in the market and what sort of purpose they serve.
Tokens for payments
Tokens that are used for payments are designed to facilitate direct transactions between buyers and sellers of products and services on digital marketplaces. This removes the need for a middleman (which we commonly find in traditional finance like banks and firms). Bitcoin is the original and most well-known payment token as its design is a peer-to-peer cryptocurrency.
Utility tokens, as the name implies, are designed for utilizing something. Utility tokens represent a value on the blockchain and can be thought of as vouchers or a way to grant access to the thing offered by the issuer of the token.
When you buy a utility token, you gain access to the network’s product or service and can either use it for the specific use presented by the network or choose to trade it.
Stablecoins were made popular by the token that was originally designed to be pegged to the value of the US Dollar – Tether. Since Tether, other stablecoins have emerged.
Simply put, stablecoins are created to hold a stable nature compared to the rest of the market. This means their value is predictable in macro-economics. Most stablecoins are pegged at a 1:1 ratio to a fiat currency and are backed by an asset as collateral to keep the value from shifting. Some stablecoins are pegged to commodities like gold, oil, and other alternative assets.
The main purpose of a stablecoin is to alleviate the volatility of a cryptocurrency while still offering the benefits that a digital asset can present, such as being borderless and easy to send around the world.
Security tokens get their value from an external asset that has been tokenized. They are sold as securities in accordance with financial regulations in place depending on the region and the legislation in the country of development.
Typically, security tokens are used to tokenize things such as real estate, bonds, stock, and other currencies in the world. Because stock can be tokenized, it creates a way for owners and shareholders to vote by using the security tokens, which can help manage decisions.
Cryptocurrency exchange tokens
Some cryptocurrency exchanges have tokens specifically issued by the platform. Binance Coin (BNB) is an example of an exchange token. They are issued by and used on the exchange for buying, selling, and trading tokens. Most commonly, exchange tokens are used to facilitate trades between tokens and used to pay gas fees on the platforms.
Non-fungible tokens (NFTs)
When an asset is fungible, it means each asset is worth the same thing. For example, one Bitcoin is worth another Bitcoin and a dollar has the same value as another dollar.
When an asset is non-fungible, it means each unit has a unique value that is not the same ast the next unit. For example, art is non-fungible as one painting by an artist is not valued the same as the next one.
A non-fungible token (NFT) can be used to represent art, images, audio, video, collectibles, virtual assets, and as a representation of contracts.
Whichever type of cryptocurrency strikes your fancy, trading and investing in the space is exciting and offers a long-term reward both in profit opportunity and the learning potential for the emerging technology. Finding the right platform like Bitcoin Method to trade on is a great way to engage with the crypto industry for beginners and experts alike.