After its first boom in 2011, Bitcoin which was created in 2009, was the first real use case of the blockchain technology. As competitors adopted this emerging technology, new types of cryptocurrencies began to appear. So if you’ve been keeping up with the crypto news lately, you must have come across different types of these digital assets that have a variety of use cases.
Although many people use the terms crypto, coins, and tokens interchangeably, it's critical to understand how they differ in order to grasp the basics of cryptocurrencies.
Coin Vs Token
Before we dig in, let’s clarify the definition of coin and token. Although used synonymously, a coin is a digital asset that is native to its blockchain network, while a token is an asset that is foreign to the blockchain they were built on. For example, BTC is the native coin to the Bitcoin blockchain and so is ETH to The Ethereum blockchain, however, DOGE is a token that was built on the Ethereum blockchain. As you might know, Ethereum is one of the most popular blockchain for building tokens that are referred to as ERC-20 Tokens.
What Are The Types of Cryptocurrencies?
- Store of Value Tokens (Digital coin/token)
In general, currencies (as well as precious metals) are valuable because they can be used as a store of value as well as a medium of exchange. The term "store of value" is used to characterize any asset's ability to prevent depreciation over a lengthy period of time. As a result, in order to be termed a store of wealth, an asset's worth must be either stable or increasing through time. Just like fiat that we keep in our pockets, a digital coin is money but in a digital form and serves as a means of payment because it’s a unit of account, store of value and medium of transfer or exchange.
Bitcoin is considered an excellent store of value coin due to its scarcity (limited supply) and is frequently referred to as "digital gold." To know other examples of cryptocurrencies that can be viewed as a good store of value, click here.
- Utility Tokens
Although it has value same as the store of value tokens, utility tokens are coins that offer their owner access or the right to use a product or service within its ecosystem. Usually, utility tokens are developed by tech startups that aim to offer a new digital product or service. Typically, the startup sells utility tokens during the initial coin offering (ICO). Investors can purchase these tokens and use them to make payments on the issuing company's platform.
So we can say that utility tokens are coins that offer value to investors in a different way than digital coins. Crypto exchange tokens are considered utility tokens, for example, BNB can be used on Binance Exchange ecosystem for discounted trading fees.
- Stablecoins
Stablecoins are cryptocurrencies that are pegged to fiat money, or to exchange-traded commodities. Being a great enmesh between the traditional financial system into the crypto market, stablecoins are always favorable by new traders as they are a good stable investment that keeps them safe from the eye watering volatility of the markets. The most famous stablecoins are Tether (USDT), Paxos (PAX), Gemini (GUSD), TrueUSD (TUSD) and USDC.
- Security tokens
Security tokens are a digital representation of an investment product or external, tradable asset like stocks or precious metals or ETFs. Issued by FinTech firms in a process called STO (Security Token Offering), just like utility tokens’ ICO, these tokens are registered with the respective financial market authority.
The remarkable thing about security tokens is that it can represent a fractional ownership of a real asset. Example: SiaFunds: tokens used for revenue sharing on the Sia network; a 3.9% fee from every storage-related transaction on Sia is distributed to the holders of Siafunds. The Sia core team currently holds approximately 85% of all Siafunds.
- Privacy Coins
Some digital assets are designed for privacy to keep the identity of the sender and receiver hidden. In contrast to public blockchains like Bitcoin's, which display transaction amounts as well as wallet address balances for each transaction, the number of coins transferred in the transaction only appears to the sender and receiver. Examples of Privacy Coins are ZCash (ZEC), Monero (XMR), and PIVX (PIVX).
