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Get in the NODE #3: Types of Cryptoassets

The list of options goes on and on… (courtesy on coinmarketcap.com)

On coinmarketcap.com there are more than 1,500 coins and tokens listed (and this is only a fraction of those in existence!). What do all of these do? Why are there so many in the first place? What is a cryptoasset in relation to a coin/token? The seemingly never-ending list of options can be very intimidating for someone looking to gain a better understanding of how they compare with each other.

Taxonomy in the crypto universe is still a work in progress, with various categorizations proposed among industry thought leaders. In an effort to provide a better understanding of how it works I’ve listed two levels of categorizations below that have helped me think through the space.

We’ll start with a general taxonomy and then dive into the roles that tokens play. The list of examples is not exhaustive but is meant to give readers the lay of the land of how the most popular tokens function.

General Taxonomy

Cryptoassets refer to any digital asset. A coin exhibits properties of currencies and typically has its own blockchain (ie. Bitcoin, Ethereum, Litecoin). A token is usually issued on top of another blockchain (ie. Augur, 0x, Golem).

At the highest level, they fall into three main buckets:

(1) Cryptocurrencies

  • Provide users with a means of exchange, unit of account, and/or store of value

Analogous to:

US Dollar, Euro, and Japanese Yen

(2) Cryptocommodities

  • Provide fungible digital resources such as smart contracts, bandwidth, compute power, etc

Analogous to:

Copper, natural gas, and wheat

(3) Cryptotokens

  • Provide digital goods and services and can represent ownership of digital or tangible assets

Analogous to:

Chuck E Cheese tokens, pogs, and Los Angeles MTA tokens

A More Granular View of Tokens

Now we’re ready to dive in a bit deeper to see the specific roles that tokens play in the current ecosystem. This section outlines the various types of rights that can be bestowed upon tokenholders along with specific examples.

(A) Traditional Asset Tokens

  • Represent cryptographic ownership of a traditional asset. The first wave of asset token projects include financial instruments, real estate, and art.

Examples

Organizations that have already, or are planning to, issue asset-backed tokens
Asset Token Platforms

(B) Utility Tokens

  • Allow users to access a digital service or good

Examples

Web browser and online advertising, scaling on Ethereum, identity, and cloud computing

(C) Work Tokens

  • Grant tokenholders the right to provide work to the network in exchange for additional tokens

Examples

Prediction markets, privacy layer for Ethereum, stablecoin, and blockchain interoperability

(D) Governance Tokens

  • Tokenholders have influence on protocol governance commensurate to the amount of tokens they hold

Examples

Digital jurisdictions, decentralized exchanges, inter-blockchain protocol, DAO governing Digix Gold Tokens

(E) Discount Tokens

  • Consumers can use the token as a coupon to receive discounts when they access the service

Examples

Centralized exchange; supply chains

(F) Revenue-Share Tokens

  • Tokenholders receive interest or dividends generated from the project
Lending platform, centralized exchange, and metadata attribution for digital creative assets

(G) Non-Fungible Tokens

  • Tokens represent scarce, unique digital assets
Digital kitties, virtual reality platform, and sketch art

Cryptoasset Taxonomy Outlook

The crypto space can be very difficult to wrap one’s mind around given that cryptoassets play such a variety of roles within decentralized networks. It’s important to reiterate that classification in this space is very much a work in progress and that cryptoassets may have multiple categorizations. As new protocols and decentralized applications (dapps) continue to innovate, I expect new categories to emerge (which is what makes the space so exciting!). Hopefully this guide has helped further your grasp of the space — tune in for our next issue where we will cover the conditions required to support a token model within decentralized networks.

Special thanks to Chris Burniske, Jack Tartar, and Nick Tomaino, whose work has shaped my thinking on crypoasset classification.

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