Understanding the Types of Crypto Tokens and Their Benefits

Types Of Crypto Tokens

  • Many people confuse themselves between cryptocurrencies and crypto tokens. But these two terms are very different from each other. They may seem complex but are easier to understand. With the increased adoption of blockchain, the use of cryptocurrencies and crypto tokens is also expanding. Both are a part of cryptocurrency development.  Let us discover the types of crypto tokens and their applications.

    What Is A Cryptocurrency Token and How Does It Work?

    A cryptocurrency token refers to a category of cryptocurrency representing a digital class asset or specific use. It exists on another cryptocurrency’s blockchain. Tokens are useful for investment, storing value, and making purchases. A company issues these tokens as a unit of value or utility. Tokens present programmable assets or access rights. The organizations manage these tokens through underlying ledgers. Since cryptographic tokens are a collection of rules, they are encoded in a smart contract, known as a token contract.

    Each token resides in a blockchain address. Any person with the private key pair belonging to the address can access the respective token.

    A company issues tokens when they launch an Initial Coin Offering (ICO), similar to the Initial Public Offering (IPO). The major difference between ICO and IPO is that in an IPO the stockholder receives shares in return for the investment. In an ICO, the user gets a token in exchange for the investment. Users can easily redeem these tokens to access the product or service of the organization.

    Also Read: Blockchain Based-Tokenization | A Guide to Essentials

    What are the Types of Crypto Tokens

    Payment Tokens

    Payment tokens are a medium of exchange and are mostly referred to as coins. The main objective of these tokens is to serve as a store of value, and unit of account. For instance, coins like Bitcoin, Ethereum, Tether, etc are Payment Tokens.

    Payment tokens also gain or lose value on the basis of demand and supply in the market. An increase in demand and a decrease in supply leads to a rise in the value of the token. Similarly, the value decreases with lower demand, and greater supply.

    Also ReadReal Estate Tokenization and Blockchain | An In-depth Guide

    Utility Tokens

    Using Utility Token, the holder can access a blockchain-based product or service.

    For instance, Users can use transactional tokens Ether to access applications or to make payments for smart contracts to be executed on the Ethereum blockchain. Similarly, users can utilize GAS coins to access the NEO network.

    Security Tokens

    Security tokens refer to traditional securities like stocks and shares. These tokens are digital, liquid contracts for a proportion of any asset that already has some value, like a property. Insecurity tokens, the holder has ownership rights that are preserved on the blockchain ledger. Several regulators control the issue and trading of such tokens.

    In simpler terms, a Security token is a one of its kind token representing a share in an external asset or organization. The token is issued on a permissioned or permissionless blockchain.

    Also Read: Crowdfunding Your Business Idea with Security Token Offering

    Non-Fungible Tokens

    A Non-Fungible Token (NFT) is also a unique digital asset or a crypto token. Since it represents ownership of a specific asset that exists in the real world, there is no standard value. For instance, it can represent possession of any video, audio, art, etc. Though these tokens use the same blockchain technology that powers cryptocurrencies, they are different from a currency. These tokens are perfect for proving possession rights, identity, and authenticity.

    Also Read: Emerging NFT (Non-Fungible Tokens) Use Cases Beyond the Hype

    Benefits of Cryptocurrency Tokens

    Cryptocurrency tokens are one of the most important innovations in today’s world. While the world is accepting cryptocurrency as a payment option, crypto tokens will provide the world with frictionless markets. Let us have a quick look at the benefits of Cryptocurrency Tokens:-

    • Tokens represent or create a specific asset on the blockchain. With the help of tokenized assets, people can easily trade any asset in the world without any arbitrator. This creates a frictionless market and removes a lot of barriers from the system.
    • With the help of tokens, integrations can be done in a decentralized way. We also do not need to set any standards or create dedicated channels.
    • Tokens play a major role in making payments easier and more secure.
    • Tokens hold value and can also be exchanged but most importantly they represent physical assets.
    • From investment to storing value, and trading, tokens are beneficial in every sector and solve the problem of holding multiple assets.

    Tokens are the future of payments and investments. It is a secure, reliable, and efficient way of trading.

    Connect with our crypto development experts for more information about the types of crypto tokens and their business applications

Published on : Sep 23, 2021

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Mansi Rajput (Writer)

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