Token School 2. — What types of tokens exist?
Tokens can be divided in five groups by their functionality…
There are five different groups of tokens, and they are divided by their functionalities:
- Utility Token
- Security Token
- Currency Token
- Reward Token
- Asset Token
Utility Token
Utility tokens serve as the in-platform coins for purchases.
An ICO may present a product which will cost a certain amount of tokens they created. Once you buy those tokens during the ICO, you will have them available for purchasing their product or service. Most of the ICOs offer their tokens for a significantly lower price, especially during the early period of token sale.
Security Token
The security token is also called equity token and tokenized security. The main purpose of this type of token is to act as a stock after the initial coin offering has ended.
It is just like old-fashioned buying of stocks to become a rightful owner of a certain percentage of a company. However, these tokens have one big advantage over traditional stocks — they are much easier to buy. Some ICOs offer a relatively small price for their tokens and you can invest really small amounts of money. If everything goes well — you are likely to have a huge return on investment.
Currency Token
The currency tokens are actually the real cryptocurrencies. Their purpose is to use them to buy and sell things on the Internet. They are a decentralized online currency.
Just like every other currency online, you can store it in digital wallets and even trade them for other tokens.
Reward Token
The reward token is also known as reputation token and its purpose is to reward someone on the platforms that use blockchain technology and tokens. Although this idea is interesting, reward tokens are still not popular among investors due to the fact that they do not have any real value.
Asset Token
The asset token represents the value of a real-world asset or product, thus making it easier to buy a share of that asset. This process is called tokenization and the default example would be a tokenization of gold. Simply, instead of buying the gold itself, you can only just buy the tokens which represent that gold. Tokenization can really come to life if carefully implemented. However, the whole tokenization part is still not fully researched and many investors still opt for other types of tokens.
