Since the inception of Bitcoin, a lot of cryptocurrencies are emerging. What gets an investor or enthusiast more confusing is how the cryptocurrency market is getting broader day by day. Even though there are a lot of government regulations and norms set to regulate the trading and exchange of cryptocurrencies, nothing seems to stop the aspiring minds and companies to put up a great show in this market. We are talking about the digital tokens, how many types of digital tokens are there, their utility and how they are different from one another.
Digital Tokens/ Currencies
The most popular and sought-after digital token is Bitcoin, which is widely popular is a form of digital token which is also popularly referred to as a cryptocurrency. These cryptocurrency or digital tokens run on a platform which is known as Blockchain. Blockchain refers to the blocks of transaction that a network is relying on, thus creating a chain of transactions once each and every block is being verified by the network, hence the technology is known as Blockchain.
The more the number of users in the particular network the greater the trust factor in that network, this technology is completely based on peer to peer network and is completely decentralized.
Utility Tokens are the tokens that are being issued by a company which gives the user the rights to fundamentally use the token within the boundaries of the platform they are providing. These type of tokens usually enter the market through an ICO (Initial Coin Offerings) where the focus of a company is to issue tokens to raise funds and at the same time feature their product or service through the token itself.
For an example, WePower, which is a decentralized platform for green energy aims at providing green energy by issuing the tokens, 1 unit of WePower token represents 1 unit of power.
A tokenized security can be referred to as a portion or a share of a company that an owner or buyer purchases during the sale of the token. They are also referred to as equity tokens.
Difference between Tokenized Securities and Utility Tokens
Well tokenized securities and utility tokens have a difference, Utility tokens are within the predefined ecosystem where the tokens are supposed to be used, but when it comes to tokenized securities you basically own a part or share of the company, just like the equity market, the profits earned by the company will be renumerated back to you, just like a digital share that is being held by you.
In order to differentiate between Tokenized Securities and Utility Tokens, there is a distinction, these tokens have to go through a test known as Howey Test where a series of questions are being created by the SEC (Securities and Exchange Commision) of the United States which determines the jurisdiction and validation process of a transaction.
Asset-Backed tokens represent a digital token which is backed up by a collateral(asset), these type of tokens’ value depend upon the underlying asset is backed up with.
For example, a cryptocurrency which goes by the name Tether is backed up by 1 USD, the value of tether also fluctuates around a dollar, so here Tether is backed up by a collateral which is the USD.
These type of tokens are less volatile as compared to other cryptocurrencies.
Also Read: Permissionless Vs Permissioned Blockchain
Reward Tokens are basically as the name goes “Reward” for the participation of the user in a predefined platform.
These tokens are not used as a form of investment, in other words, these tokens are not popular in the perspective of investment, the reason being it is very difficult to ascertain the value of these tokens.
Even though some of the tokens have performed exceptionally well, the reason is active participation of the users in the ecosystem or the platform they are working on which remunerates them.
Hope this article helps you get some insight on the types of tokens that exist in the market. Stay tuned for more.
Disclaimer: The opinions presented here are of the Authors. Readers should do their own due diligence before taking any actions related to the promoted company or any of its affiliates or services. CoinScenario.com is not responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in the press release.