Now that we understand the difference between a coin and a token, we can explore the different types of tokens. Based on my research, there are differing opinions on token classifications. I did my best to sort through the noise, and have presented a summary below.
Related reading: What's the difference between a coin and a token?
I found some articles suggesting there are up to 5 or 6 different types of tokens. But based on my understanding, I feel that most tokens can be classified into one of four main types: (Last edited October 22, 2020)
These tokens are best thought of as on-chain representations of real-world property, securities, or other types of financial assets. Ownership can entitle an individual a right to a share of earnings, a right in property distribution, or other similar legal rights.
Examples:
Merido: Tokens represent real estate shares
Factor-805: Tokens represent real estate shares
Paxos Gold: Tokens backed by physical gold
By following the lead of Paxos Gold, an argument could be made that other stablecoins can be classified as security tokens.
Related reading: What is a stablecoin?
Utility tokens generally represent access to a service, or can function as a medium of exchange within an ecosystem.
Examples:
Basic Attention Token (BAT): Advertisers gain access to an individual's attention when consuming digital media with this token.
Golem (GNT): Individuals gain access to network computing power with this token.
SAND (SAND): This token is used as the basis for transactions throughout the Sandbox ecosystem.
The decision-making processes around decentralized protocols often require tokens to back blockchain-based voting systems. Governance tokens fill that role.
Examples:
Maker (MKR)
Compound (COMP)
Kyber (KNC)
I have written a separate article to explain non-fungible tokens (NFT) in more depth. These tokens represent a unique asset (no two of them in the world are identical), and they have no value when divided. These can either be entirely digital assets or tokenized versions of real-world assets. In fact, some of these tokens are not available for mainstream use at the moment! I'm simply predicting their prevalence and acceptance will increase dramatically over the next five years.
Use cases for NFTs include:
Tickets for travel, or events such as concerts, conferences, etc.
Seat reservation
Degree and/or timing of access provided
Entitlement to specific services (refundable, transferrable, etc.)
Digital identity
Digital items (for gaming, gambling, and other industries)
Crypto-collectibles
Related reading: What is a non-fungible token (NFT)?
Last edited October 22, 2020
It's notable that some tokens can fit into more than one classification. New use cases will also present themselves regularly in this rapidly evolving industry. The next time someone speaks about a token, you can try to see if it fits into one or more of the four uses cases presented in this article.
Thanks for reading, and stay safe!
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Last edited October 22, 2020
Cover image by loufre (modified by the author) from Pixabay
Image 1: Photo by Nick Chong on Unsplash
Image 2: Image by Mudassar Iqbal from Pixabay
Image 3: Image by B Ban from Pixabay
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Resources:
https://academy.binance.com/en/glossary/token
https://blog.makerdao.com/the-different-types-of-cryptocurrency-tokens-explained/
https://blockgeeks.com/guides/utility-tokens-vs-security-tokens/
https://blog.liquid.com/whats-the-difference-between-security-tokens-and-utility-tokens
thank you for visiting my friend!
Good article my friend
I have updated this article...there are now 4 types of tokens!
Very interesting article
thank you for visiting! I have just updated this article if it interests you to read about a 4th classification.
I have BAT from the Brave browser but haven't tried using them...
I have updated this article and added a fourth classification of tokens!
most people trade the BAT they have for other crypto...or they hold it as an investment hoping it will increase in value.
if you like BAT, you can earn more of it by publishing your content on P0x, like a few of us are doing.
thanks for visiting! =)
Interesting. I kept wondering if coins can also be classified in the same categories as tokens. 🤔 I know fom your last article that a token is not the same as a coin, but the categories are the same, right?
i have updated this article my friend...subtle but i think you will like it. =)
Ah nice. 👍
I didn't even notice that NFT were missing before.
neither did i...i was relying on other sources for research, and none of them listed NFTs. this change was due to my own thinking and reflection. plus those were older articles that i was looking at...NFTs are relatively new, but increasing in popularity very quickly it seems.
thx for visiting again!
You're welcome. And I believe that you are absolutely right to list them as a separate category. 👍
good question my friend. the way i understand it, the primary use case for coins is payment. I don't see how they would fit into these three classifications that i listed for tokens.
What is the main underlying blockchain for tokens?
I have updated this article to include one more classification of tokens if you care to visit again. =)
Nice update. I like it. Thanks for letting me know
thanks for returning, and thanks for the tip! sadly I can't reciprocate or it will trigger tax laws in my region.
Hi, and thanks for visiting!
I invite you to visit a previous article that I embedded into the one you just read:
The most popular tokens right now run on the Ethereum blockchain.
Good article my dear