Cryptocurrencies are a new investment opportunity and instrument that is becoming increasingly important to investors and entrepreneurs. The following distinctions are of utmost importance to each investor since they determine exactly how you invest. Without further ado, let’s get started on types of cryptocurrencies you need to be aware of. There are two major types of cryptocurrencies, and every cryptocurrency is either a coin or a token.
You need to know whether a coin is a token and what type of coin or utility. Also, you should know the value of the crypto you are considering, and how current and future SEC regulation will affect it.
Coins have their Blockchain, this essentially means that they have decentralized, peer-to-peer networks that record transactions on a digital ledger. Most popular cryptocurrencies such as BTC, ETH, and XRP are coins. Since they have their Blockchain, it makes sense that they serve as a currency (a means of exchange) within the network. That explains why Bitcoin is called the digital gold, it is a store of value just like gold, and why Ripple is popular for its superfast global transactions. Furthermore, it is easier to convert USD to a coin rather than a token. Investing in token usually requires exchanging USD for a coin.
Tokens on the other hand are cryptocurrencies that do not have their Blockchain. The Ethereum Blockchain is the most popular platform for token creation though you can theoretically create a token on any Blockchain. Some of the specific Ethereum-based tokens include 0x (ZRX), Maker (MKR), and Basic Attention Token (BAT).
Most tokens are utility tokens, whereby, if you buy or trade a token on a cryptocurrency exchange without being an accredited investor, then it’s a utility token. In simpler terms, a utility token gives an investor access to a service or product. It could mean early access, discounted rate, or exclusive access. Anytime you hear about smart contracts and DApps, you should always assume that a utility token is involved.
Another type is the security token which represents part-ownership in a tradeable, real-world asset external to the Blockchain. since security tokens are regulated by SEC just like securities, you have to be an accredited investor to participate in Security Token Offerings. Investing in security tokens is slightly more difficult.
Stablecoins are also generally tokens, they don’t have their Blockchain. Maker (MKR) and Tether (USDT) are some good examples of stablecoins that function as currencies. As we develop new applications for digital currencies, distinctions between types of cryptocurrency become increasingly blurred, which makes SEC regulations more uncertain.