Token Types

Whilst there are difference between tokens and coins, there are also differences between tokens. With such a cutting edge industry, there continues to be new buzz words used to refer to token types.

Tokens Vs Coins

The terms token and coin are often used interchangeably. However there are differences between the two and there are also differing types of token as highlighted below.

First off, some basic definitions:

  • Token: A cryptocurrency primarily used for a specific utility. A Token may be used as money, but this is not its primary purpose. A token may represent an asset, like a house or a stock. A token may perform a role on a blockchain technology platform, such as allowing holders to vote. A token may offer holders some financial incentive, denominated in another currency.
  • Coin: In cryptocurrency, a Coin is primarily used as money. Litecoin is a coin. Bitcoin is a coin. NEO is not a coin, as it isn’t optimized for use as a currency. “Coin” may be used loosely to indicate any cryptocurrency, and in some ways tokens are coins. But a true coin should not be mistaken for a token. Bitcoin is not a token, as it represents nothing but itself, and is only used as money.

Tokens can then be split into several different categories.

They may be released as two different forms: mainnet tokens and placeholder tokens. Placeholder tokens are issued through an ICO when the technology upon which they are meant to function is not yet active. These tokens are issued to investors, who save them until the mainnet platform is released, then trade them for “real” tokens at some later date. ICON and EOS both used this model.

Other times, token type is more straightforward. In these more frequent cases, the tokens issued are the “real tokens” from the start. They can already be used for their indicated utility, and traded for any other cryptocurrency as a true asset.

3 other types of token

As the industry is still in its infancy stage, it is difficult to fully categorise different token types. Mainly because more are being developed or don't quite sit neatly under one heading. Below we highlight 3 of the major categories of token type.

Equity token

Equity tokens basically allow startups to issue stock or equity tokens through their ICO. It allows shareholders to take a more active role in the company as voting can be conducted transparently on the blockchain.

This is also beneficial for startups because it leads to easier access to the financial markets. There aren't a huge amount of companies attempting equity token sales yet due to a lack of regulation but it looks to only be a matter of time before they do play a larger role in the market.

Securities token

Securities tokens refers to anything that can be tradable. Depending on the ICO, securities tokens can represent anything from real estate to commodities. Investors therefore have a wide variety of assets they can diversify their portfolio into.

Utility token

If a token does not fall under the equity or securities token then it probably should be referred to as a utility token. These provide access to a product or service.

There is normally a fixed supply of utility tokens, which often make it an attractive investment because the supply is limited. Should the demand for the service increase so will the price due to the cap.

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