5 Types of Tokens You Need to Familiarize Yourself With Today

5 Types of Tokens You Need to Familiarize Yourself With Today

The market for digital tokens has grown significantly in the past few years. Unlike the stock market which only offers basic shares in companies, the broad range of investing potential makes digital tokens incredibly attractive to shareholders. Here are a few types to be aware of.

Digital Currencies

These make up the most well-known and inclusive category of digital tokens. Also known as cryptocurrencies, digital currencies utilize blockchains to provide fast peer-to-peer transactions and function similarly to real currencies.

Different types of cryptocurrencies have emerged, each catering to different user needs.

  • Bitcoin (BTC) is the most widely recognized.
  • Litecoin (LTC) offers faster and cheaper transfers than BTC.
  • Monero (XMR) is a privacy-centric alternative to BTC.

While success stories of making millions and billions off of Bitcoin have hit the news recently, cryptocurrencies are still incredibly volatile, and the lack of government regulation on the currencies makes adoption rather risky.

Utility Tokens

Also known as app coins or user coins, utility tokens can be thought of as tickets for users to access specific platforms. For instance, a startup project might give these out to users who then have permission to use the product and possibly provide suggestions on its development.

Utility tokens provide a convenient method for startups to raise initial funds and receive consumer feedback quickly.

Basic Attention Tokens (BAT) is one example. BAT is the internal currency for the Brave browser and is used for exchanging products, images, and articles amongst its users.

Equity Tokens

Equity tokens are also called security tokens or tokenized securities. They can be seen as digital shares in a company. Each owner of an equity token has a right to a portion of a company or project.

Equity tokens enable startups to thrive by lowering the barrier of entry for investing in new projects. Also, security tokens are becoming more government-regulated over time, which may lead to more adoption in the future. Overstock is one example of an equity token distributor.

Asset Tokens

Asset-backed tokens are exactly what they sound like. They take the place of physical items in digital markets. However, asset tokens aren’t too popular since the price of the token generally stays in line with the price of the associated item.

Tiberius Coin, for example, is a new type of asset-backed token that is linked directly to physical metals.

Reputation/ Reward Tokens

Finally, we have reputation tokens that are rewarded to users for participating in certain blockchain platforms. By interacting with other members, users will gain more of these types of tokens.

Having more reputation tokens is an indication that you are trustworthy in that particular platform. Further, reputation tokens can sometimes be exchanged for cryptocurrencies.

STEEM, for instance, is issued in the Steemit social media and content creation platform.

Choosing the Right Token

There’s no easy answer when it comes to choosing the right token. It really depends on your investment strategy, your risk tolerance, and the quality of the tokens that you are investing in.

Hopefully this article has provided you with a basic understanding of the different types of tokens.

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Eric Carriere

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