Whenever the word cryptocurrency is mentioned, the first thought that comes to our mind is coins, indicating storage value or a way to exchange wealth. This misconception about cryptocurrency is quite common, due to the popularity of Bitcoin. While the history of the entire crypto tokens is almost the same, there are some distinct differences among various types. Let us discuss in detail three main variations of cryptocurrencies.
This is the cryptocurrency which most people know about. It is like Bitcoin, which has a store value or is a means of exchange. They are also known as transactional tokens, these token have value because the parties involved in their transaction say they have value.
Bitcoin was created in 2009, as an answer to some of the drawbacks related to the traditional currency. This doesn’t mean that digital currencies are perfect, even they have certain drawbacks, one of the drawbacks of Bitcoin is its one-megabyte block size and its network throughput capability.
Another concern related to Bitcoin is privacy, as transactions of a wallet can be viewed publically. Though the address of the wallet and the identity of its owner are anonymous.
These are cryptocurrencies that are also known as user tokens or app coins. These are used to gain future access to a product or a service. In the current blockchain landscape, it is a common practice for startups, to raise funds via ICO or initial coin offering, issuing tokens or coins that can be used by backers in the future, to gain access to the services or products offered by the startup. To make the deal even sweeter, the token holders are also given a discount on the finished product final price.
Utility tokens such as Ripple are designed to serve a particular purpose. Ripple was created to provide a frictionless transfer of regular money. It is used by banks and financial institutions.
Initially, utility tokens were not developed as an investment asset, but many people contribute to their ICOs hoping that in the future the token prices will increase with an increase in the demand for their product and services.
These are tokens that are full blockchain technologies, having their protocols and providing a platform for applications or dApps (distributed apps) to be developed. They are designed to create new markets, launch cryptocurrencies, and eradicate middlemen.
One of the most popular platform cryptocurrencies is Ethereum. It is a blockchain, that is used to run smart contracts and also acts as a building block for new cryptocurrencies, in other categories.
These tokens provide membership or digital subscriptions to their holders, which they can use by trading tokens.
Disclaimer: The article is meant for the educational purpose only and in no way it should be considered as financial advice. Own research on the topic is advisable.
Photo by geralt on Pixabay
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