Cryptocurrency is a combination of various technologies. The term itself has become synonymous with any concept of cryptocurrency. Cryptocurrency is steadily becoming a mainstream avenue for investment with a good expectation of return. Like any monetary transaction, it is essential to verify the authenticity of each facet of the transaction. To find out the basics, let us start with, what is blockchain technology.
What is blockchain technology?
A blockchain is like a digital ledger. It is a structure that stores transactional records in several databases known as a chain. It is a network connected through peer-to-peer nodes. This ledger cannot be manipulated and is immutable which also facilitates tracking and recording transactions. There are multiple applications of blockchain Technology and it can be useful to track assets whether they are intangible or tangible. This is the base of what is widely known as cryptocurrency.
Types of cryptocurrencies
The term cryptocurrency is widely used for everything available for sale all trading you can distinguish the idioms based on their design, code, and applications. Bitcoin was the first operational cryptocurrency however it was not the only kind. Find out about the types of cryptocurrencies by reading further.
1. Coins – All coins are termed as cryptocurrency irrespective of whether they serve as a unit of account, medium of exchange, or store of value. Coins can be differentiated from altcoins they are mainly on the blockchain. For example, Ether or ETH is the native token on the Ethereum blockchain.
2. Altcoins – Coins that are alternatives to Bitcoins are known as altcoins. Most of these have been developed from the Bitcoin blockchain. They are Dogecoin, Litecoin, and so on. However, there are some old coins like Ethereum, Ripple, and Omni which have their blockchain.
3. Tokens – Tokens and altcoins are often used interchangeably. Tokens are the digital representations of a particular asset in a blockchain. Tokens are different as they reside on top of another blockchain and are not native to the blockchain. They are specially developed to carry out a smart contract on blockchains like Ethereum. We can also transfer tokens from one chain to another and they do not need a third party to operate. When developing a token, the professional follows a standard template. They don’t need to edit the code of the blockchain from the scratch.
Tokens are further divided into utility tokens security tokens payment tokens exchange tokens non-fungible tokens.
Types of tokens
To understand what cryptocurrency has evolved into and what you will be taking on when you invest, here is an overview of the kind of tokens that exist.
1. Utility tokens – utility tokens are closest to what you can have to digital coupons. Their units represent a certain value on the blockchain. They can be exchanged for a product or service. Utility tokens are not an investment product and they can lose value. The owner of the token does not have stock or bond or any other asset on the mentioned blockchain.
2. Security tokens – security tokens are a representation of a state, share in stock or equity, or the power to make changes. Security tokens are further divided into equity tokens or asset-backed tokens. Equity tokens are similar to owning shares in a company. The holders are entitled to dividends and have a say in the decisions taken. Asset-backed tokens are backed by Real world commodities. These are tradable.
3. Payment tokens – these are used for buying and selling goods and services without a third-party blockchain. Most of the cryptocurrencies and tokens are in this category. Whether tokens are security tokens are utility tokens they can fall into the category. Since these are a mix of other tokens it is noteworthy that not all utility tokens are payment tokens.
4. Exchange tokens – these are used mainly for exchanging other tokens or gas utility payments on these exchanges. Popular examples of exchange tokens are – the Binance coin, KuCoin, Uni token, etc.
5. Non-fungible tokens – non-fungible tokens are all the rage right now. It is a digital stamp of ownership unique nonreplaceable item. Design-making wave in the world of content creation of every form. The very first NFT was created on the Ethereum blockchain. NFT is great for artists to get paid their dues as the digital signature cannot be replicated or exchanged for another. The holder of NFT has an original of art.
If you are looking for a crypto blog that helps you understand the difference between assets, this is the perfect guide.
