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Cryptocurrency FAQ - What are the different types of tokens?
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.
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.
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.
Degree and/or timing of access provided
Entitlement to specific services (refundable, transferrable, etc.)
Digital items (for gaming, gambling, and other industries)
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.
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