Cryptocurrencies, what types are there?
Every day, many coins or tokens are created in the blockchain by the so-called crypto miners. However, not all of these tokens are the same. Not only does it differ whether you mine a Bitcoin or an Altcoin , the purpose of a token can also be different. These different purposes create different types of cryptocurrency tokens : utility tokens, security tokens, equity tokens, asset tokens and reputation tokens.
One entitles you to profit sharing and another gives you access to a specific operation in the blockchain. In short, each coin has its own function. We currently distinguish five different types of token functions. Below are all types of cryptocurrency tokens explained one by one.
Soorten cryptocurrency tokens: Utility Tokens
The Utility Token is a token that can be used to gain access to a blockchain or to perform a certain action. These are tokens that are used as ‘utilities’ for a specific project that takes place on the blockchain. In some cases, these tokens are also called User Tokens. The majority of the Utility tokens consist of the so-called ERC 20 tokens. These are developed on the Ethereum blockchain.
A Utility token is therefore not initially intended as an investment with high returns. It is only a token that utilizes projects. However, these tokens are very popular with crypto investors. A crypto coin like Ethereum is one of the most popular tokens in the world of crypto investments. The reason for this is that these well-known tokens are seen by many investors as ‘powerful’ and as a token with ‘potentially high returns’. Because many think this and then act on it, the Utility tokens have the wind in their sails in terms of returns.
Soorten cryptocurrency tokens: Security Tokens
The Security Tokens are intended as an investment. They are tokens where one expects to receive dividends or to be able to share in the profitability of the token. These coins are put on the market by companies or blockchain organizations via a Security Token Offering (STO). The Utility coins that we discussed above are offered via an ICO, Initial Coin Offering. An STO is somewhat safer than an ICO, because these tokens have an underlying value, such as shares.
However, many issuers of crypto coins are not so keen on the designation as Security token. The moment the coin is seen as an investment coin, they suddenly have to adhere to strict laws and regulations of, for example, the Security and Exchange Commission (SEC). This can result in fewer opportunities on the market and a lower volume at the STO. In short, for the creator of the coin, the risk is higher with a Security than with another token.
Soorten cryptocurrency tokens: Equity Token
An Equity token is actually a sub-variant of the Security token. However, an Equity token is used as a real share in an organization or project. With this token you buy a position in such a project or company. It is therefore best compared to a ‘preferred stock’ . Equity tokens also fall under the same rules and legislation as Security tokens.
Types of Cryptocurrency Tokens: Asset Token
Asset tokens are representations of an asset; a product. This can be a car, a house, but also a patent or balance. For example, you could sell your house via an Asset token. In this case, the asset token has the value of the product or real estate that you are selling or buying. Licenses and rights can also be paid or issued in this way. It is a safe way to transfer liquid assets to another party and thus pay for, for example, a physical product.
Soorten cryptocurrency tokens: Reputation Token
The Reputation token, also called reward token, is actually a token that gives you a status as a user of a blockchain network. The more Reputation tokens you get, the higher your reputation. In some cases this means that you can also do more operations in the system and in other cases it only means that you get a higher reputation within the group.
Trading in cryptocurrencies
In this article you read more about the different functions and purposes of types of cryptocurrency tokens. You can also trade in cryptocurrencies. This is often done via a CFD on a crypto coin , but it can also be done by ‘physically’ purchasing cryptos via a crypto exchange . With a CFD you can speculate on the price of a crypto via a broker. View all crypto brokers and compare the providers .
Our reading tips
for the novice investor