Distributed Ledger Technology (DLT) is barely a decade old. The concept of cryptocurrency emerged from its application, and since then, the economy has changed forever. But innovation is constant in the blockchain world, and different technologies have created new types of crypto. This article will explore these new assets and their main characteristics.
For an introduction to the world of cryptocurrency, read the complete guide about cryptocurrencies.
The Indian government has again moved to stop trading in crypto assets. It is important to educate oneself on the different types of cryptocurrencies to know which ones the prohibition applies.
A crypto coin is a type of cryptocurrency that is the native currency of a protocol. This means it is the main asset of the network in question and is used in transactions across it. Also, a crypto coin can exist outside its native protocol and be moved to other types of mediums, such as servers or blockchains. This is useful for exchanges and atomic swaps, the latter being exchanges across different blockchains.
A crypto coin is very important for the success of the network. Its price and trade volume are usual metrics traders and investors use to judge the health of a project. If the price is weak and volume low, traders will look at it as a project in a downturn spiral and may avoid it.
Examples of this type of cryptocurrency are Bitcoin (BTC), Litecoin (LTC), Dash (DASH), Ripple (XRP), and many others. The coin is the flagship product of the network, and it must be followed closely by anyone looking to invest in it.
There are two categories in the realm of coins:
Bitcoin: As the first-ever cryptocurrency and the first successful blockchain implementation, Bitcoin is in a class of its own. Many see it as the only true decentralised asset and confuse BTC with other projects and blockchains.
Altcoins: In the early days of blockchains, many newly created coins were forks of the Bitcoin client or the Bitcoin network. This originated the term "altcoin" to classify any new cryptocurrency that wasn't BTC. It means an alternative to Bitcoin, and the name stuck.
Read about the history of Bitcoin forks for more information.
Even now, when we have crypto coins that don't share a direct link with the Bitcoin network, such as Cardano (ADA), Tezos (XTZ), Algorand (ALGO), and many more. People will refer to these cryptocurrencies as altcoins. So, keep it in mind when you hear the term in the future.
Source: The Conversation
A crypto token is an asset developed on top of an existing protocol. These types of cryptocurrencies do not have an entire network at their disposal, and they share the network's resources with other tokens and the leading coin of the project. Because of this, a crypto token cannot exist outside its home protocol. This means that the token inherits any limitation the overall parent blockchain has.
Now, why would anyone release a toke? In short, designing, programming, and running a complete blockchain is difficult. Even those networks that were forks of Bitcoin still demand a lot of time to be in working condition. A token is a faster and more reliable way to launch a crypto asset without the concern of implementing a consensus mechanism, coding protocol rules, attracting miners or validators, and the many other demands of a fully realised protocol.
It was Ethereum that first innovated the idea of tokens. From the ETH exosystem, the ERC-20, ERC-725, ERC-721, etc., come from and many other projects have copied these different standards to launch tokens in their networks. Of course, in this area, cryptocurrencies have not stopped, and there are many different types of tokens, such as -
Fungible tokens
A fungible token is one where anyone token is entirely interchangeable with any other from the same project. For example, any Basic Attention Token (BAT) is 100% equivalent to any other BAT in the market. Now, a BAT has a rate of exchange with the LINK token, even though both are in the Ethereum network.
The most popular standard for launching this type of token is the ERC-20 from Ethereum. This has led to many other blockchains copying this design and incorporating it into their protocol, like Tron's TRC-20 token, which serves the same role as ERC-20.
non-fungible tokens: these tokens are not equivalent to each other. Each is unique or belongs to a class of unique assets with limited supply. Again, it was Ethereum that led the way in their development. The most common design for this type is the ERC-721, where every single token is unique. A popular alternative is the ERC-115, which allows developers to create batches of unique tokens.
Utility token: this is a type of token used to access the service provided by the project. Normally these are ERC-20 tokens of fungible ones since it is a desirable property for them. Utility tokens were the main drivers of the ICO boom of 2017, and they are the most common type out there. An example would be the Brickblock (BBK), a token used to invest in real estate issued on Ethereum.
Security token: This asset class implies ownership of the underlying asset. A utility token only allows access to services. A security token represents ownership and gives rights to the holders, such as collecting dividends. This is why security tokens are much more regulated.
Governance token: a recent variation on the utility token concept. A governance token not only guarantees service access but also gives holders the right to present proposals and vote on changes. An example is the Maker Token (MKR). People must hold a certain amount to submit changes to the Maker DAO project.
Source: cryptoverze
In just 10 years, cryptocurrencies have evolved in many ways. From the beginning with Bitcoin, we had the first crypto coins. Then Ethereum introduced the concept of tokens, which led to the development of many types of these assets. In the future, the blockchain will evolve even more, and cryptocurrencies will change along with it.
