As cryptocurrency has evolved, various uses and different token utilities have arisen. Most cryptocurrency sectors aim to disrupt a current centralized industry with functions only available with a decentralized core system. Here are 5 of the main cryptocurrency categories and the roles they play in the current space.
1. One-function coins – This is essentially digital cash that has no intermediary, where one party can send crypto to another party directly. Yes, most cryptocurrencies fall under this category, but there are some that ONLY have this as their primary function.
Examples: Bitcoin, Bitcoin Cash, Litecoin, Dogecoin.
Qualities: Faster, cheaper, and more secure than fiat currency.
2. Swap tokens – These coins are necessary to use a liquidity pool in order to lend/borrow/stake or another related action. A swap coin sustains the pool’s liquidity using the coin’s unique tokenomics that trigger actionable incentives for users so the pool remains balanced.
Examples: PancakeSwap, Sushi, Uniswap.
Qualities: Allow you to earn passively.
3. Stablecoins – These are asset-backed cryptocurrencies that are pegged against a government-issued stable currency or an external asset, such as oil, precious metals, or real estate.
Examples: Terra, USD Coin, DAI.
Qualities: Store of value, considered the safest staking option, necessary for Interoperability.
4. Security tokens – Used for anonymous transactions so no public records are kept. These tokens are necessary to access the privacy focused blockchain.
Examples: Monero, Secret, Zcash, Decred.
Qualities: Protects against any taxable actions,
5. Smart Contract / dApp tokens – These tokens are necessary to facilitate the exchange of information in the form of smart contracts. The native token to the layer 1 platform is used to allow layer 2 dApps and protocols to be easily added on top of the network.
Examples: Ethereum, Cardano, Cosmos.
Qualities: Access across a network of multiple applications, including various different tools and operations.
Token standards
All tokens have a subset of smart contract standards – a set of rules they flawlessly operate within. This standard is part of the cryptocurrency’s code. The 2 most commonly used token standards are:
1. ERC-20 – The original token type created for Ethereum in 2015. This is most adopted token standard in crypto. This standard is simply an interface that allows for Ethereum-based tokens to be created. It’s primary function is to allow token transfers. Other features:
It’s fungible, meaning any ERC-20 token is interchangeable with another kind of ERC-20 token.
Ideal functions for the simplest crypto creation (balance tracking, transferring & distribution, allowance settings).
The optional functions for token creation are the name, Ticker symbol, and divisibility of the token.
2. BEP20 – The token standard for Binance on the Binance Smart Chain. BEP stands for “Binance Evolution Proposal.” It essentially creates the rules for all coins on the BSC using its Mint, Burn, Blacklist, and Pause parameters.