A Token for All Seasons: A Guide to Understanding the Types of Tokens

Not all tokens are created equally. Some can only pay your bills, while others represent a real-world asset you can own without the hassle of physically carrying it on being in its proximity. Some tokens are only good for giving you access to exclusive offerings, while others represent investment in a company or asset. For those stepping into the blockchain industry, understanding the nuances of the technology can be quite daunting and many would-be “investor” have found themselves saddled with assets that only unlocks certain services, rather than bestow ownership — basically, instead of owning company stock to that news publisher, you bought yourself a lifetime subscription. To avoid these pitfalls and enable market participants to make informed decisions, we shall be examining the types of tokens out there, their functions and uses.

Broadly speaking, tokens can be classified into four different classes:

• Utility,
• Payment,
• Equity, and
• Security Tokens

However, before we proceed, it’s important to reiterate the fact that tokens are not coins. While tokens are issued on existing blockchain and can exist alongside a myriad of other tokens with different functions and uses, coins exist as the sole currency for payment on its own blockchain. Tokens are also dependent on the blockchain they’ve been issued on for transaction speed, fees, and scalability, meaning they inherit all the blockchain’s strength and flaws.

Utility Token

If a token enables you to perform specific tasks within a platform or access exclusive features on the platform, then it is a utility token. Utility tokens are service layers addressing specific needs by providing access to them. Also sometimes known as “Network Access Tokens”, these class of tokens facilitates access to features or operations on the network. Ethereum paved the way for the first major utility token, Ether. Ether enabled developers to code and run smart contracts on Ethereum blockchain, paving the way for not only a new class of cryptocurrency but also new ways of leveraging the technology.

Utility tokens are the most common class of tokens in the market. However, they are not investment instruments due to the fact that they provide access to services or functions only. This has not stopped would-be investors from speculating on its in the hopes that growing demands for the tokens will send the price shooting up the chart.

Payment Token

Coins are basically store value representing digital currency for doing exactly what fiat does without interferences from mediators. Payment tokens possess the same ability without requiring a native blockchain to power it. These tokens are designed to facilitate the exchange of financial values and transactions and will let you buy and sell stuffs just like any fiat currency. An example of this USDT (US Dollar Tether) which is the tokenized form of the USD.

Equity Token

Equity tokens, like its traditional counterpart, gives its holders control and ownership of an organization or part of it — depending on the amount they own. As an owner, the token holder will benefit from all the organization’s success and has the right to vote. However, due to the absence of regulatory clarity and guidelines, equity tokens remain largely uncharted waters for blockchain-based startups. The recent bill passed by Delaware for companies to keep their shareholders name on the blockchain has cast a glimmer of hope for a better future for this token type.

Security Token

Due to its broad classification as any tradable asset, security tokens have emerged as not only the token class everyone wanted to invest into but just didn’t know it, they have also come to cover just about all the tokens out there due to the following facts established by the SEC vs Howey.

• Investment of fund by consumer
• Into a common venture,
• Based on the expectation of profit

Or as Marco Santori of Cooley LLP Fintech succinctly described it “an investment of money. And a common enterprise. With the expectation of profit, primarily from the efforts of others.”

With most token holders becoming conscious to the fact what they really want is an investment vehicle rather than utility and payment, there’s increasing number of calls for a platform that will enable market participants truly invest in project development and reap the benefits of their investment. A platform that will protect their interest and bestow upon them the rights and privileges of an investor in a safer, transparent, and accountable environment. A platform like CentrumCoin.