Cryptocurrency has seen a great rise and even pretty significant drops in 2021, but there is no question that more and more people are getting into it. There are some curious about it but are hesitant for one reason or another to get into crypto.
Crypto can come across as very daunting and overwhelming, especially with all the terms everyone in crypto should know. An example of which is cryptocurrency tokens and their different kinds. If you happen to get confused about there, you are in the right place.
In this article, we here at Tech Times will help you differentiate security tokens, utility tokens, and governance tokens so you can easily tell one from the other.
Cryptocurrency: What is It?
Before we explore cryptocurrency tokens, let us define what cryptocurrency is. Investopedia has defined cryptocurrency as “digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend.”
Cryptography is an important keyword in that definition that not everyone may know the meaning of. Cryptography, to simply put, is the practice of ensuring secure communication, especially when third parties are present.
Cryptocurrency is generally not issued by a central authority, such as a country’s national bank, has unstable volatility, and makes use of blockchain technology.
Popular examples of cryptocurrencies include Bitcoin, which is often regarded as the first crypto, Ether, Binance Coin, Litecoin, XRP, and Tether.
In the world of crypto, there is something known as cryptocurrency tokens or otherwise simply referred to as tokens. CoinMarketCap has defined tokenization as “the process of creating tokens as a medium of data, often replacing highly-sensitive data with algorithmically generated numbers and letters called tokens.”
There are different kinds of tokens available in the crypto market. They are as follows:
According to CoinMarketCap, governance tokens give an individual “rights over the protocol that they subscribe to, or rights over the tools and applications built atop of the protocol.” These tokens are created by developers so that the future of a protocol can be shaped with the help of the token holders.
A well-known example of a governance token is Maker (MKR). MKR holders can vote on decisions that involve a protocol known as decentralized finance (DeFi).
Security tokens are digital representations of different kinds of assets. These assets can be equity, investment fund shares, fixed income, and even real estate. These assets are held and traded on a blockchain, according to CoinMarketCap.
Utility tokens, otherwise known as app coins or user tokens, are tokens that give holders a product, service, or even both. They often serve as a way to access a network or platform. Utility tokens are generally unregulated and help create an internal economy within the blockchain of a certain project.
Examples of utility tokens include Filecoin, Siacoin, Golem (GNT), and Basic Attention Token (BAT).
Read Also: Different Types of Cryptocurrency
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Written by Isabella James
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