The cryptocurrency world is still very new, and as such, changes in the system occur rapidly. Different types of cryptocurrencies are present left and right, with seemingly no end in sight. You may then ask yourself, why are they necessary? Can we not have just one?
Well, the thing is that different cryptocurrencies have different features, and as such, have differing uses. In this short guide, we hope to make you aware of the most vitally important categories to pay attention to. This should give you the tools to start navigating through the crypto market.
So, first of all, we must understand tokens. These are not an actual currency which you will trade in. These tokens indicate the value of a currency and give people a benchmark off of which to base their judgment. They are created for use in Initial Coin Offerings (ICOs) on launch, to give investors and prospectors an initial idea of where coins stand.
Several types of tokens exist. There are the utility tokens, first of all. These are used for services within the blockchain economy, and for digital trades (smart contracts). They can also give discounts and early access, depending on the particular token.
Then there are security tokens. These tokens base their value on real assets in the real world. As such, these are the least volatile and most regulated types of tokens. Security tokens also offer extra protection in that those using them must verify their transactions.
The coins are most of the actual currency with which you will likely trade in the blockchain. You can use them outside of the blockchain economy for real-world use, i.e., goods and services.
You can also subdivide these into several types. There is the privacy coin, which allows you, as the name suggests, to make private transactions. Only the two active parties should know about their trade and its details.
Then we have stablecoins. These are more like the security tokens we spoke about earlier. They are relatively stable and give investors confidence in their performance. They are also based on real-world assets, usually a different traditional currency. Traders usually use this type of cryptocurrency as a safe-haven, much like they use the dollar when they are unsure about their deals.