There are many types of cryptocurrencies, and they can be distinguished by their formulation, code architecture, and intended use. Coins, security tokens, altcoins, non-fungible tokens, DeFi tokens, and utility tokens are conceivable results.
This guide covers digital currencies and tokens. Also featured are how cryptocurrencies differ, how they’re used, and examples of each. Visit Coinwire to learn more about cryptocurrencies and DeFi.
Differentiating Between Cryptocurrencies
Many people use “cryptocurrency” interchangeably with “coin,” although it’s a specific class of digital money. Blockchain technology separates coins from altcoins. On a blockchain with gas payments in a separate cryptocurrency, native tokens also serve as the fuel token. Ether (ETH) or Bitcoin on their own blockchains are examples.
Despite their similarity to physical coins, digital currencies are often seen as Bitcoin alternatives. Except for Ethereum, most cryptocurrencies were divided from Bitcoin. Examples include Namecoin, Litecoin, Peercoin, Auroracoin and Dogecoin. Several altcoins have blockchains. Few do.
Tokens represent a blockchain asset or service digitally. Altcoins are any token that isn’t native to its blockchain. They can be transported between blockchains and make Ethereum smart contracts easier to deploy. Because they contain autonomous code, tokens can work without a central server. They can be exchanged for other currencies. They can replace loyalty points, commodities, and alternative cryptocurrencies.
1) Utility Token
When it comes to the ecosystem of a crypto project, tokens that serve a particular purpose are known as utility tokens. Utility tokens are not a crypto currency like Bitcoin. Utility coins’ sole purpose lies inside the framework of their specific smart contract technologies.
Examples: Funfair, Timicoin, Brickblock, and Golem.
2) Cytocurrencies Security Token
These are cryptocurrency tokens backed by an external (independent) asset that can be lawfully traded on financial markets. They’re used to securitize bonds, equities, real estate, and fiat currencies. Separate categories of security tokens include: Equity tokens and Asset-backed tokens
Examples: Sia Funds, Science Blockchain and Bcap.
3) Payment Token
Payment tokens are used directly between buyers and sellers via digital platforms, unlike existing financial and banking systems. Most tokens and cryptocurrencies are security and utility tokens. But not every utility token may also be used like payment tokens.
Examples: Monero, Bitcoin and Ethereum.
4) Exchange Tokens
Exchange tokens all are issued and utilized on cryptocurrency exchanges, while their exact nature is debatable. The optimal use case for these tokens was facilitating trading between tokens or paying for exchange-provided gas.
Examples: BNB token or Binance Coin, Gemini USD, OKB, KuCoin Token, HT, Uni token, CRO and Shushi.
5) Non Fungible Token (NFT)
Non Fungible tokens are digital certificates of ownership for scarce, irreplaceable, or non-fungible assets in the blockchain ecosystem.
Tokens for art, images, audios, videos, real estate, collectibles, memes, GIFs, virtual worlds, digital content such as tweets and posts, music, fashion, drawings, paintings, academia, pornography, political items, movies, games, sports, or digital assets of value use the same technology.
Examples: Nyan Cat, Taco Bell, Cryptokitties and Cryptopunks
6) DeFi Token
The term “decentralized finance” is used to describe the next wave of financial technology that relies on distributed ledgers like the blockchain to facilitate peer-to-peer transactions and access to international markets on a worldwide scale.
These Decentralized Finance apps can be accessed from any web browser. The DeFi platform itself functions as a token economy for each app. Using a smart contract, developers may add a layer of intelligence to token payments and flows of transaction.
Examples: Solana, Chainlink, Uniswap, Polkadot, Aave, and many others. Some categories of DeFi applications include decentralized lending apps, decentralized exchanges, decentralized storage sharing, etc.
Solana, Uniswap, Chainlink, Aave, Polkadot, etc. DeFi applications offer decentralized finance, trade, and storage.
7) Fiat-Based Cryptocurrencies and Other Stablecoins
These tokens, whose name implies a generally consistent worth throughout time, indicate a stable economy. Stablecoins or stable tokens are digital currencies backed by a stable asset, like fiat cash. There are tokens backed by oil, gold, and fiat currencies like the euro and dollar.
Examples: Tether, like Gemi Dollar, TruSD, Paxos and USD Coin, is backed one-to-one with US Dollars. Gold-backed stablecoins include Gold Coin (GLC), DigixGlobal (DGX), Tether Gold (XAUT), and Kitco Gold. Stable coins backed by algorithms include DefiDollar (USDC), Ampleforth (AMPL), Frax (FRAX) and Empty Set Dollar (ESD),
8) Tokens backed by assets
Asset-backed tokens are a type of cryptocurrency whose worth or value is backed by fiat currency, equities, bonds, property, and precious metals. Most underlying asset transactions use security tokens because of their nature. The primary distribution route is ETO (Equity Token Offer).
Examples: Ziyen’s Oil coin, Petroleum Coin, and OilCoin, which represent stored oil, etc. Tokenized energy examples include EWT, GET by WPP, etc. Wheat Token Coin tokenizes wheat and other commodities.
9) Privacy token
These currencies are utilized for privacy operations because their programming supports more anonymity than Bitcoin and other mainstream cryptos.
Better crypto transaction privacy is desirable for the protection of personal information, sensitive security investigations, and discreet financial interactions.
Examples: Zcash, Monero, Horizen, Dash, Verge, and Beam.