Cryptocurrency
Cryptocurrency is an encrypted digital currency that is secured through cryptography – which is essentially the use of codes to encrypt and thus secure data.
Cryptocurrencies are stored and transacted on blockchains – a distributed ledger that keeps a record of all transactions to verify who owns what – and are virtually immune to fraudulent activity such as counterfeiting and double-spending. There are effectively two different forms of what we know as ‘cryptocurrency’: native cryptocurrencies – also known as crypto coins – and crypto tokens.
Cryptocurrencies vs Crypto Tokens
What is the difference between a cryptocurrency and a crypto token? There are native cryptocurrencies – as explained above – and there are crypto tokens. cryptocurrencies are the native currencies for a layer1 blockchain, for example, BTC, ETH, SOL, ADA etc… on the other hand though, crypto tokens are where the utilities go wild.
Because crypto tokens are issued through a smart contract on the blockchain their form and purposes can vary extensively, based on what is coded into the smart contract by the developer.
Privacy Tokens
privacy tokens are generally native cryptocurrencies that are built on a blockchain which is specifically designed to be anonymous in order to protect the privacy of users transacting on it. The best representation on this is monero.
NFTs
NFT stands for Non-Fungible Token, these are distinguishable tokens that each have their own unique value and perks, they are also commonly used for ownership verification of digital assets, such as videos images, or digital artwork.
Utility Tokens
The use for utility tokens is relatively self explanatory, they are tokens which serve a certain utility or set of utilities, these utilities can vary expensively based on what the developer choses to program them for. A utility token could be used for staking or may be required to use a certain protocol, or could theoretically be used to access certain content or features on a website, blockchain, or dApp.
Security Tokens
Security tokens are crypto tokens that have features of securities but are on the blockchain, technically U.S. regulators haven’t clarified which tokens have the properties of securities and which ones fall under other categories but generally, tokens such as DAO, governance, and asset-backed, and potentially stablecoins have the properties of securities and could therefore fall under the securities token category. (useless tokens technically would probably fall under the security tokens jurisdiction as well)
DAO Tokens
DAO stands for Decentralized Autonomous Organization, DAO tokens represent an ownership stake as well as voting rights in the Organization. Some there are many different DAOs just like there are many different corporations and some DAO tokens also can have other perks such as profit sharing or value accrual attached to them.
Governance Tokens
Governance tokens represent governance rights in a Decentralized application or protocol.
Asset-Backed Tokens
Like stablecoins these are tokens that are pegged to the value of an asset, however, asset-backed tokens are pegged to real assets such as stocks, indices, and commodities… sometimes these can also be referred to as tokenized assets.
Stablecoins
Stablecoins are crypto tokens that are pegged to the value of a stable asset usually a currency such like the U.S. Dollar.
Useless Tokens
The downside of the crypto industry is the easy ability to create a token and get people to buy it. There are many useless tokens out there that anyone can buy but have no utility no value and no purpose aside from being a Ponzi scheme to trick retail investors out of their hard-earned money. Beware of these scams and always do your own research (DYOR) to check out any tokens you are interested in investing in.
