Blockchain 101: Different types of blockchain applications
Not all cryptocurrencies have the same operational purpose, different types of cryptocurrency fill niches within industries. The crypto world extends far beyond Bitcoin or any single type of cryptocurrency. Protocols are built to be utility token, smart contract platform, security token, privacy coins, stable coin, payment currency, and many more!
1) Utility Token
Utility tokens are digital assets designed to be used within a certain blockchain ecosystem. It represents future access to a company’s product or service and are services or units of services that can be bought. The defining characteristic of utility tokens is that they are not designed as investments and if properly structured, this feature exempts utility tokens from federal laws governing securities
2) Security Token
A security token is something that represents legal ownership of a digital or physical asset such as real estate or artwork that has been verified on the blockchain. They are directly related to the growth of the company.
As deemed by the US Securities and Exchange Commission (SEC), any token that can’t pass the Howey test should be considered a security. As such it should fall under the 1934 Security Exchange Act.
Simply put,
ICO + Legal Compliance = STO
A token’s characteristics and how the token is sold determines whether securities laws of various jurisdictions may be applicable.
3) Stable Coin
There are three types of stablecoins: fiat-collateralised, crypto-collateralised, and non-collateralised.
Fiat-collateralised stablecoins are those which are pegged to real-world assets such as the US dollar, the euro, the pound or the yen.
Crypto-collateralised stablecoins are those which are linked to the reserves of other cryptocurrencies. They maintain their one-to-one ratio through over-collateralisation.
Non-collateralised tokens are those which are pegged to precious metals such as gold or even oil.
4) Payment Currency
These assets are mainly for payments. For example, you could use payment currencies to pay for goods or services, pay your bills, cash out from digital currencies to local fiat currencies like the dollar, etc.
While every digital asset can theoretically be used to pay for things, merchant adoption or acceptance by providers of goods and services is more widespread for Payment Currencies.
5) Smart Contract platform
A smart contract is a computer protocol intended to digitally facilitate, verify, or enforce the negotiation or performance of a contract. Smart contract allow the performance of credible transactions without third parties.
They take the functionality of blockchain technology further than just payments.
These platforms allow you to create your own digital assets (usually referred to as tokens), decentralised applications (Dapps), etc. on their platform. Therefore, smart contract platforms become their own “Blockchain Economies” with different assets, applications, and more.
6) Privacy Coin
Some digital assets are created with a focus on privacy. In Privacy Coin transactions, only the sender and receiver know the number of coins transacted. Also, the balance of a Privacy Coin wallet address is only known by the owner of the wallet. Privacy coins are built to facilitate anonymous transactions between individuals. These transactions can be value based (similar to currency) or they can move information between individuals without leaving an identifiable trail.
This is in contrast to blockchains like those of Bitcoin, which show transaction amounts for each transaction as well as wallet address balances.
7) Non-Fungible Tokens (NFT)
The term non-fungible means that one unit of a particular product is not perfectly interchangeable with another.
For example, Bitcoins are fungible; every bitcoin is interchangeable. None of them are special or distinguishable from other dollar bills in any way that would create more or less value.
NFTs are the opposite; they are distinguishable from one another because each one has different characteristics.
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