types of cryptocurrency

Welcome to whiteboard programming where we simplify programming with easy to understand whiteboard articles and today

types of cryptocurrency I’ll be sharing with you types of cryptocurrencies that you must know about in order to wisely invest in crypto… but before we start to discuss cryptocurrency types,

let’s first understand the difference between coins and tokens in crypto, So, coins are assets on their native blockchain,

whereas tokens are assets foreign to the blockchain they live on. The examples for coins are Bitcoin on the Bitcoin blockchain and Ether on the Ethereum

blockchain and examples for tokens include Uniswaps or “UNI” token and Chainlink or “LINK” token that is used on the Ethereum blockchain.

Please note that in some conversations, articles, while the distinction between coins and tokens is technical, we can group tokens and Coins by their intended usage and while there are a lot of crypto types, let’s start by discussing each, one by one,

1. Security Tokens Here, by “security”, we mean it as a tradable financial asset. The Howey-Test is used to help us tell if an asset is a security or not. As per US Securities Act, a security is defined as, A contract, transaction,

or scheme whereby a person invests his/her money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party Confused? Let’s simplify them with a set of questions to consider like,

1. Was there an investment of money?

2. Was the money invested in a common enterprise?

3. Was there an expectation of profit?

4. Are the profits solely from the efforts of the promoter or a third party?

Examples for such security tokens can be found by looking for security token offerings (STOs) on icoholder.com, and coincodex.com, and just to answer a popular debate,

Bitcoin is not a security token, because the money is not invested in a common enterprise. Further, security tokens can be divided into

2 types, the first one is, Equity Tokens, these are the type of security tokens that allow the holders to have some ownership rights over something.

Some examples of equity tokens include “The Elephant Private Equity Coin” and “Recovery Right Token (or RRT)” Further,

the second one is, Asset-backed Tokens Here, the tokenization of assets makes them tradable. That is, instead of trading the asset itself,

you trade the token and it is very similar to paper money we use today: Instead of trading gold, you trade paper which represents a certain amount of gold.

But, the issue with asset-backed tokens is the lack of oversight. and of course, the issuer of the token can claim to back that the asset is backed by anything, but without actual checks, this claim isn’t worth anything significant.

Also, for your knowledge, here’s are some assets that can be tokenized: – Precious metals… For eg, PaxGold (PAXG) and Digix Gold Token (DGX) are backed by gold – Company shares:

Here, instead of trading company shares via well-known exchanges, they could be traded as crypto tokens. – Liquid commodities: … For eg,

The PetroDollar (XPD) is claimed to be backed by oil and mineral reserves – Real estate: There are multiple tokens around real estate and several countries That look into representing real estate as a crypto token.

The IHT Coin seems to go in this direction, but it also makes the impression that it’s not ready. Next on the list is 2. Utility Tokens As security tokens are traded with the expectation to get direct profit from them, in contrast to these,

utility tokens are traded with the expectation to serve some essential purpose or get some utility out of them. For example, a FIL (Filecoin) token / SC (SIA) can be used to store a file. and The CVC (Civic) token can be used to verify a user’s identity,

in the real world, gift cards and public transportation tickets are examples of utility tokens. and other examples for utility tokens are the Basic Attention Token and the Golem Token.

3. Non-Fungible Tokens (or NFTs) All coins and most tokens are interchangeable. If you have multiple one-dollar notes, it does not matter which one you use to pay for a snack. However, if you buy collectibles such as art, comics, stamps, or baseball cards,

it does matter which one you have. We all know that No Van Gogh is the same as any other Van Gogh. The digital equivalent of this is CryptoKitties. The idea is that you — and only you! — can have some digital value.

This property is especially attractive for computer games, where players already pay a lot for rare items within the game. Putting those on the blockchain gives the players more control over their earned assets and maybe

it would even be possible to trade the items across games in the upcoming future, What if, right? 4. Stablecoins Stablecoins are digital representations of fiat currencies.

They fall into one of these three groups: – Fiat-collateralized, this cryptocurrency is backed by fiat currency. Examples are Tether (USDT) and the Gemini Dollar (GUSD).

– Crypto-collateralized, this cryptocurrency is backed by another cryptocurrency, an example is DAI.

non-collateralized stablecoins rely on a smart contract to buy/sell the stablecoin in order to keep the price constant. Interestingly, several stable coins are actually not coins, but tokens, two examples of actual stablecoins are TerraUSD and

Steem Dollars and two examples for “stable tokens” are Tether and USD Coin as both are ERC20 tokens on the Ethereum blockchain.

As a key takeaway, I would recommend you to go through my articles on what is tokenomics to gain more understanding on the subject,

the link is there in the description below and lastly, in order to get a rough understanding of a crypto project, you must ask the following questions before taking that leap of faith:

1. Is it a coin or a token? If it’s a token, which blockchain is used? Does the project maybe start as a token on Ethereum and plan to transition to their own blockchain over time?

This could give you an insight into which types of security issues you might have to worry about, where the main amount of work will go, and if the high gas prices of Ethereum and Ethereum

2.0 might be interesting for that project or not.

2. Choose from the discussed groups: Is it a digital currency, an exchange token, a smart contract blockchain, NFT, an asset-backed token, a utility token, or something different? The answer might affect regulations and should help you to understand how the project can provide value to its users.

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