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Cryptocurrency FAQ - What are the different types of tokens?

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Written by   75
1 year ago

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)

1) Security Token

Image 1: Photo by Nick Chong on Unsplash

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?

2) Utility Token

Image 2 by Mudassar Iqbal from Pixabay 

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.

3) Governance Token

Image 3 by B Ban from Pixabay 

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)

4) Non-Fungible Token (NFT)

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

https://cointelegraph.com/news/defi-governance-tokens-tread-carefully-as-the-secs-invisible-hand-looms

https://blockonomi.com/governance-tokens/

https://hackernoon.com/what-is-stablecoin-and-how-it-is-related-to-security-token-security-token-vs-stablecoin-8d40135928e3

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Written by   75
1 year ago
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Comments

Good article my dear

$ 0.00
1 year ago

thank you for visiting my friend!

$ 0.00
1 year ago

Good article my friend

$ 0.00
1 year ago

I have updated this article...there are now 4 types of tokens!

$ 0.00
1 year ago

Very interesting article

$ 0.00
1 year ago

thank you for visiting! I have just updated this article if it interests you to read about a 4th classification.

$ 0.00
1 year ago

I have BAT from the Brave browser but haven't tried using them...

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1 year ago

I have updated this article and added a fourth classification of tokens!

$ 0.00
1 year ago

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! =)

$ 0.00
1 year ago

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?

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1 year ago

i have updated this article my friend...subtle but i think you will like it. =)

$ 0.00
1 year ago

Ah nice. 👍

I didn't even notice that NFT were missing before.

$ 0.00
1 year ago

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!

$ 0.00
1 year ago

You're welcome. And I believe that you are absolutely right to list them as a separate category. 👍

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1 year ago

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.

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1 year ago

What is the main underlying blockchain for tokens?

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1 year ago

I have updated this article to include one more classification of tokens if you care to visit again. =)

$ 0.00
1 year ago

Nice update. I like it. Thanks for letting me know

$ 0.00
1 year ago

thanks for returning, and thanks for the tip! sadly I can't reciprocate or it will trigger tax laws in my region.

$ 0.00
1 year ago

Hi, and thanks for visiting!

I invite you to visit a previous article that I embedded into the one you just read:

https://read.cash/@CryptoWordsmith/cryptocurrency-faq-whats-the-difference-between-a-coin-and-a-token-348f6fde

The most popular tokens right now run on the Ethereum blockchain.

$ 0.00
1 year ago