litecoin cryptocurrency trader P26GR9H scaledWhether you are looking to invest in cryptocurrencies or just want to use them in day-to-day life, you must first know about the different types of cryptocurrency and which is best for which purpose.
Ever since Bitcoin became known in 2009, cryptos have been a popular choice for investors who want to reap instant benefits from the volatile crypto market. However, more than that, these digital currencies have marked their existence as a financial instrument that can be customized to hold the actual value.
But wait. Before you start investing in digital money, it is important that you know about the major types of cryptocurrency.
Types of cryptocurrencies – Where to invest?
All cryptocurrencies can be broadly divided between the following two types –
- Coins
- Tokens
Coins
Coins are digital currencies, which have their own blockchains. Most of the first cryptocurrencies, including Bitcoins, ETH, etc. were developed as coins. Another thing to know about coins is that these cryptocurrencies are created with the main purpose of facilitating digital transactions.
Besides Bitcoin, Titan coin (TTN) is a modern example of a coin, which enables instant and secure digital payments on a global platform through its unique, hybrid (PoW/PoS) blockchain. Other examples include NEO and Nexo coin.
Blockchain is a decentralized network, which makes it possible to transfer data globally in a peer-to-peer manner such that all transactions are recorded in a public digital ledger.
Tokens
Tokens are the second most common type of cryptocurrency. The main difference between a coin and a token is that a token does not have its blockchain. Tokens are usually created on an existing blockchain such as Ethereum blockchain.
While coins primary work as a currency for the exchange of digital value (like titan coin for cross-border monetary transactions), tokens usually represent a service or product or stake in a company.
Based on the entity they represent, tokens can be further divided into two types.
- Utility tokens
- Security tokens
Utility Tokens
As the name suggests, utility tokens are cryptocurrencies that represent some kind of utility. In general terms, these tokens give the holders access to a specific product or service of the issuing company. Now, a token can be customized to give any specific rights or access to the holder. They can also be associated with decentralized apps (DApps) such as smart contracts.
You’ll find that in most cases, utility tokens represent a project with an actual real-world purpose. The value of a token is, therefore, determined by the project it represents.
Security Tokens
Security tokens are digital securities that represent the value of a real, physical asset. Investing in a security token will give you sharing (part-ownership) in the underlying asset or company. Unlike utility tokens, security tokens must be regulated by the SEC. Only accredited investors can invest in security tokens (STOs).
Stablecoin
Stable coins emerged as the need for a cryptocurrency that could be associated with a traditional asset such as dollar or gold. Naturally, when a digital currency gets its value from a real asset, its price will be more stable, as compared to pure cryptocurrencies which has virtual value.
A Stable coin is launched as a digital image of a fiat currency, usually with the purpose to make it easier to trade (exchange) and use that currency. All stable coins are not necessarily coins, in fact, most of them are tokens.
So, the next time you are planning to invest in cryptocurrencies, be sure to check these types of Cryptocurrency to make the right decision.
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