When most people hear about cryptocurrency, they only think about bitcoin because it was the first operational cryptocurrency for the public. Still, it remains an essential aspect of the world of cryptocurrency because it opened the door for other cryptocurrencies in many variations. The article introduces four different types of cryptocurrencies, basing the classification on the code design, formulation, use case, and application, among other considerations. The different categories of cryptocurrency include but are not limited to tokens or altcoins, security tokens, utility tokens, decentralized finance tokens, and non-fungible tokens (NFTs), among other categories. The article introduces the different types of cryptocurrencies, the strategies for differentiation, how different cryptocurrencies are utilized, and the examples of each type of cryptocurrency.
The term cryptocurrency refers to different types of cryptocurrencies used interchangeably with coins. However, they do not refer to the same things regarding the units of account, storage value, and the mediums of exchange. Cryptocurrencies are differentiated in the following classifications. Coins are based on blockchain and act as native or fuel payment tokens, although the fuel can be paid using different cryptocurrencies. Altcoins exist as coins; examples include NameCoin, DogeCoin, and LiteCoin, among others. Tokens exist as digital presentations specific to utilities or assets in the blockchain. So what are the different types of cryptocurrencies;
Utility tokens
Utility tokens are the basics of cryptocurrency and exist as digital units representing the value of blockchain technologies. Utility tokens give traders access to products and services with permission from the token issuers. One of the common ways of using tokens is buying them from the providers to provide the users or traders with access to a service, and the token can be redeemed to access a defined value service or product. In using tokens, some important considerations include the holder having the right to a product or service equivalent to the said tokens. When using utility tokens in some states, even those with financial regulations, classifying a cryptocurrency frees it from restriction. Utility tokens are not investment products and can lose their value completely. Examples of utility tokens include Funfair, Brickblock, and Baic Attention tokens, among other types of utility tokens.
Security tokens
Security tokens are securitized cryptocurrencies that get their value from an associated external asset that can be traded under different instances, including securities under financial regulations. These characteristics make them familiar in bonds, property, and real estate and can be used as currencies in the real world. Security tokens differ from utility tokens in that they are regulated because of the nature of the dealings, transactions, exchange, issuance, and backing. The reason for regulation is to protect the security tokens’ investments. Security tokens represent a share in an organization, stock, or stake and can be divided into asset representation. Security tokens can be classified as asset-backed or equity tokens, and examples include Sia Fund, the science blockchain, and BlockChain capital.
Payment tokens
The tokens get their name from their use because they are used to pay for buying and selling goods and services on a blockchain or a digital platform. Payment tokens do not need an intermediary and are used following the traditional or finance exchange. Platforms like immediate edge allow users to use payment tokens for different purposes because most of the tokens and cryptocurrencies are classified as payment tokens. The significant features of payment tokens include the inability to invest as securities which gives them an unregulated property, and the existence as hybrids of other crypto tokens.
Exchange tokens
Exchange tokens are not clearly defined, but they get their name from how they are issued and used in cryptography exchanges. The primary use of exchange tokens is in native exchange environments. They are commonly used because they facilitate interaction with others or between other tokens by acting as utility payments in the exchanges. The main features of exchange tokens are centralized, allowing them to exist in their blockchains or with centralized or decentralized platforms. Examples of exchange tokens include Binance Coin, FTX coin, and Uni Token.
Non-fungible tokens
NFT is a common word in the crypto world that refers to tokens that exist as digital certificates of ownership of unique, non-tradeable, or non-replaceable items. The development of NFTs compares to that of other cryptocurrencies through the technology uses but are mainly used to represent things like and not limited to memes, art, photos, collectibles, and music, among other classifications. NFTs use a digital signature that gives them a unique entry in the blockchain, making it hard to trade or exchange with another. NFTs allow the artists, collectors, and creators to sell their work because it remains unique by the digital signature.