Types of cryptocurrencies.
Have you ever heard of number 3 and number 8?
Cryptocurrencies are digital forms of money secured cryptographically and provide a means of payment or other uses in the blockchain ecosystem. To read more on what cryptocurrencies are, follow this link. https://link.medium.com/4hFyGByRurb
There are different types of cryptocurrencies, and as someone who is just getting into the blockchain field and knowing many cryptocurrencies, we need to understand why they exist and what purpose they serve.
Without much further ado, we will delve into the types of cryptocurrencies and state some examples of each type of cryptocurrency highlighted below.
The type of cryptocurrencies depends on their uses. And these are;
1) Stablecoins or tokens
2) Payment coins
3) Utility coins or tokens
4) Security tokens
5) Defi tokens
6) Asset-backed tokens
7) NFTs
8) Governance tokens
9) Meme tokens
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1) Stablecoins: These are coins or tokens pegged to a country’s currency. This means that they serve as a representation of a currency of a nation. So, they neither rise in value nor go lower in value. The benefit of these coins or tokens is to acquire another cryptocurrency in crypto exchanges since they represent the value of a national currency. They can be exchanged the same way you use Fiat to purchase goods. These coins or tokens can also transfer money across different regions without worrying about its value when delivered. And since the transfer of data or currencies across blockchain network are cheaper than the conventional money transfer system. It tends to be an excellent way to pay for goods or services or hold the value of another national currency in cryptocurrency. These stablecoins are USDTether(USDT), BinanceUSD(BUSD), and USDCoin(USDC), Binance British Pounds Sterling(BGBP). etc.
2) Payment tokens: This type of cryptocurrency is used as payment for goods or services, just like fiats. Just like Dollar, Pounds, Euro etc., can be used as payment for goods and services rendered. These payment tokens can also be used for this purpose. The only thing is that they are not legal tender, but they represent the primary intent of what a cryptocurrency should be. They are primarily used to exchange goods or services across different regions without worrying about regulations, especially when exchanging these for goods or services across some countries. These payment tokens are Bitcoin(BTC) and Ether(ETH).
3) Utility tokens: As the name “Utility” implies, Utility tokens are used to serve a particular function or some functions in the blockchain network. They can be anything the founder of the token wants it to be as long as it serves its purpose. Utility tokens can be used to pay for some activities or functions. They can be used to get access or more benefit from a particular aspect of the blockchain network or any other part of the activities done on the network. They can also be used to finance a project. Examples of utility tokens and the benefits the holder derives from holding them or the function it serves while holding them. Basic Attention Token(BAT), which performs three or more functions. It rewards creators for making great content. The users also earn from the attention or time used in the brave web app. It also allows advertisers to get a better return. Another utility token is Chainlink(LINK). From coinmarketcap, Chainlink can be used for various purposes: Incentivising data accuracy, keeping contracts stable, and rewarding nodes for their work in validating transactions. Filecoin allows users to access its decentralised cloud storage platform. Also, blockchain games token can be regarded as utility tokens as some of these tokens can be used to purchase a character or add more features to their blockchain games.
4) Security tokens: While we have shares, stocks or bonds as security, In the Blockchain or crypto ecosystem, some tokens give ownership rights to a business or company. These shares or stocks can be security tokens when they are tokenised. They are better explained as digital representations or forms of traditional securities on blockchain networks. Since they give the holder the right of ownership of the project and are also tradeable, they are regarded as security tokens. These tokens are subject to federal laws. And because they are subject to national laws, they are not available to retail investors currently, and these tokens must undergo checks and permission from the Security and Exchange Commission(SEC).
5) Defi tokens: These tokens aim to bring the conventional financial standards into the blockchain space. Through the use of smart contracts, they provide various financial applications without the presence of a third party, brokerages or banks. With Defi tokens, investors can trade with it or give loans to the users and then get interest on the loans. The users can receive loans without third-party regulations. It provides a lending/borrowing agreement between two parties, which is honored between the two parties to get the contracts running. Examples of Defi tokens are DAI(Dai), Avalanche(AVAX), Uniswap(UNI), Aave(AAVE), Maker (MKR), and Fantom (FTM).
6) Asset-backed tokens: Asset-backed tokens are a form of security tokens backed by a real or physical structure but represented as tokens on a blockchain network. They may be tokenised gold or tokenised stocks or shares of a company. An asset-backed token can also be regarded as a security token as it is a unit of value pegged or backed by a real-world asset, say a company or an organisation.
7) NFTs: NFTs are Non-Fungible Tokens. They serve as a unique identifier of a real-world asset in the blockchain ecosystem. They can be a representation of anything, be it arts, collectibles, game characters or items, a domain name, access to an event or even real estate. They are pointers or representations pointing to a real-world asset on the blockchain network. This means that when an object, say art or a real estate property with a unique identifier on the blockchain network, once the identifier gets to the ownership of another person, this gives this new person the right of access to the real-world property of which the identifier is representing.
8) Governance tokens: These types of cryptocurrencies give the holders or the users some rights in the project. The rights include voting powers in the project. It provides the users with the voting right to determine some project directions. Primarily the users have a governance right to the project. Examples of governance projects include; Uniswap(UNI), Aave(AAVE), Maker(MKR), Pancakeswap(Cake), Compound(COMP), Ethereum Name Service (ENS), etc.
9) Memes tokens: These types of cryptocurrencies are regarded as meme coins or tokens or joke coins or tokens because they don’t have any use-case in the crypto ecosystem. They exist, and that’s it. They originated from internet memes and have since made their way into the crypto ecosystem as a form of memes or jokes for the ecosystem. Examples of meme coins or tokens are Dogecoin(DOGE), Shiba Inu(SHIBA), Floki Inu(FLOKI), and DogelonMars(ELON).
Cryptocurrencies have been valuable, and some coins or tokens still serve their purposes. But as an investor or trader, knowing details about the coins or tokens you are putting your money into is beneficial.
The industry is still early, and there has been rapid development in its few years of existence, a few years from now. The crypto market will gain its rightful ground, and we will see more new projects solving the problems in blockchain and the real world.
