What Types Of Crypto Tokens Are Out There?
For those interested in crypto tokens, there are some things that they should know. There are a variety of different types available. There are some advantages and disadvantages to using each one. Here’s a little bit more information about the different types of tokens available.
Why It’s Important
If you are looking to make a little bit of money by purchasing tokens, you need to understand the long term value that they potentially could have. There’s often a lot of hype around tokens which drives their value up, at least initially. Once the hype has died down they often lose their value. This is why it’s important to know about each token type so that you can determine if purchasing a certain token will be a good long term investment for you.
Understanding The Different Types Of Tokens
Due to the cryptocurrency boom, the terms “token”, “coin”, “initial coin offering” (ICO) and many others have become an integral part of the vocabulary of every trader and investor. Their use, however, is often shrouded in uncertainty and confusion.
Here are the differences between the main types of tokens.
Currency tokens. As the name suggests, these are tokens used as a form of payment and a store of value which can be retrieved at a later time. Arguably, this makes them identical to “coins” like Bitcoin and other cryptocurrencies.
Utility tokens. The advent of Ethereum created what became known as “utility tokens”. Unlike currency tokens, this type of token gives holders access to products or services within a particular platform or network. Utility tokens are multi-functional - they typically “reside” on top of a given Blockchain such as Ethereum, and for the most part, can be used within their respective network.
Securities tokens. In addition to allowing holders to purchase goods and services, securities tokens often promise investment returns and value appreciation. This quality was a reason for some market participants and regulators, most notably the US Securities and Exchange Commission (SEC), to classify them as securities. As such, they constitute an investment contract and have the potential for profit, passive income and dividends.
Asset tokens. Asset tokens serve as a digital representation of an asset in an organization or platform.
Equity tokens. More of a theoretical than practical concept right now, these tokens give their holders an ownership share in the issuer's capital, pretty much like stocks do.
Reward tokens. Most commonly, these are the Blockchain equivalent of loyalty points or other reward programs.
Dividend tokens. Those that offer a share of the profit of the issuing organization. With the exception of currency tokens, most other tokens represent an investment contract in a joint establishment, promising potential for a passive income. Such income may come in different shapes and forms. Examples include profiting from value appreciation, profits from investments and mining operations and others.
Some organizations share their profits by distributing dividends among token holders. In addition, there are Blockchains that have dividend-like features, making their currencies akin to “dividend tokens”.
In conclusion, these are just some of the types of tokens available. As cryptocurrency grows, we will continue to see more and more tokens offered. If you do plan on buying tokens, start off small and don’t become too ambitious. Don’t rush out and invest a lot of money in tokens right away as you could set yourself up for failure. As you find success and become more comfortable with how tokens work, you can always branch out more and add additional tokens to your portfolio later on.