Today we will be looking at some of the broad classifications of Cryptocurrencies. It is difficult to classify token based on their application as several tokens have multiple applications embedded. Thus, we will try to make the criteria as broad as possible, so as to give you a reasonable understanding of the differences.
##1. Payment Tokens
Payment Tokens are cryptocurrencies that have a sole purpose of transferring value from one wallet to another. The application of payment tokens may differ token to token, depending on why it was created. For instance, bitcoin was created to function as a medium of exchange that transcends barriers and intermediaries, while on the other hand, Monero was created with the same functions, but included an additional routing mechanism feature, safeguarding privacy.
Eg: Bitcoin, Monero, Zcash, Dash, Doge, etc.
##2. Utility Tokens
Utility tokens include a certain application attached to the payment mechanism. These tokens have additional applications value attached to them. It so happens that for the first time in recorded history, a payment mechanism has an embedded application onto itself, which has a ‘utility’ other than functioning as a medium of exchange. To give an example, The Golem project is a network built on the ethereum blockchain. It facilitates the trade of idle computation power in exchange for the native Golem Network Token (GNT). Thus the GNT has a utility, in this case facilitating the trade of computation.
Eg: Ether, Golem Network Token, Zilliqa, Storj, Tron, etc.
##3. Security Tokens
Tokens that represent an underlying physical asset usually fall under the category of security tokens. They can be compared to traditional instruments like stocks, bonds, etc., the only difference being that security tokens are built and issued on the blockchain. Security tokens haven’t gained enough traction when compared to other forms, but they hold huge future potential. With STOs (Security Token Offerings) beginning to gain notice, proper regulation could push security tokens to bigger adoption than the other one.
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