Cryptocurrency Redefined: The Many Variations of Digital Currency
Although not often discussed, there were several digital currency attempts prior to Bitcoin that were largely failures due to major factors such as lack of adoption or interference from government bodies that prevented the projects from moving ahead. Bitcoin, on the other hand, managed to overcome these boundaries, opening up the financial world to the myriad of cryptocurrency products that we know and love today.
For those who are just entering this economy or for those who were accustomed to the early developments, the new market can be rather confusing as there are far more assets available that go beyond the basic Bitcoin model of digital currency. To get a better grasp on some of these products and their functions, take a look at some of the coins or tokens below that you may come across as you dive deeper into the crypto ecosystem.
Bitcoin and many of the altcoins that followed suit operated as digital currencies, meaning that they had value and could be transferred between peer-to-peer as a form of payment or simply as an exchange of money. The biggest issue with these earlier models is that their value was entirely speculative and highly-volatile, which resulted in (and still results in) wild price fluctuations that proved dangerous to those who held the coin and intended in using it as a cryptocurrency rather than treating it as an asset. Stablecoins such as Tether, USDC, or DAI, entered the market in an effort to remedy this major underlying issue by backing the cryptocurrency with something that provided a true, almost unwavering store of value. (In the case of Tether, the U.S. Dollar, although the full backing of Tether is subject to debate). Therefore, stablecoins operate as a more secure form of digital currency for those who wish to treat their crypto as a usable currency.
Security tokens are tokens that represent a real asset such as equities or gold. Because they are tokenized representations of real-world assets, this makes them subject to regulatory laws and makes it (sometimes) easier for certain companies to begin their venture into crypto and it makes it easier for individuals to invest in and trade assets without the use of third-party services that often make the process more expensive and drawn-out.
Utility tokens are categories of tokens that have use and value within a certain decentralized application. Take, for example, the Brave Browser. The Brave Browser is a decentralized-application designed to improve user-privacy by changing the way that ads are presented to the user and by making it so that ads are tailored to the user’s needs and don’t contain any malware that could put them or their computer at risk. The utility token for this decentralized app, the Basic Attention Token, powers the network and provides incentive for each of the advertisers, content creators, and network users to engage with each other. The value of utility tokens depends entirely upon popularity and use.
Protocol Tokens or Platform Tokens
A protocol token or a platform token acts as a platform on which applications can be built on top of. Ethereum is the biggest example of this type of token as there are numerous platforms that have since been launched that were built on the backbone of Ethereum, which allows for the launch of the tokens listed above. While Ethereum is the most popular protocol token, some of the others that you may know include EOS and NEO.
While there are additional models out there, such as the cryptocollectible token, the products mentioned above are some of the more popular offers and ones that you are more likely to encounter. Before you start looking into any crypto investments, use the brief guide above to brush up on your token and coin knowledge to learn more about the assets that are made available to you.