If you think that NFTs are the only tokens that exist, you need to read this article: you will be surprised by the diversity of tokens that the crypto world offers us.
How are tokens classified?
- Security Tokens: These are the digital form of traditional investments such as stocks, bonds, or other securitized assets.
- Utility tokens: tokens that provide an additional service to the mere purchase of the digital asset.
- The fungibility factor - their ability to be interchangeable, so to speak - defines another classification: fungible and non-fungible tokens.
What is a token?
In a previous content , we told you about the main differences between a token and a cryptocurrency, something that is essential to establish the knowledge bases of these concepts. This time we are going to talk to you about the different types of tokens that exist in the world of blockchain , and we are going to offer you some examples.
A token is an object that represents something else, such as another object (either physical or virtual) or an abstract concept. Traditionally, the word "token" has been used to define those elements that can function as coins, but that lack legal tender value, such as casino chips -which are only useful within the casino itself, but which do not they are worth nothing outside of their space.
On the other hand, the term “cryptographic token” refers to the digital representation of something that has value within the blockchain world. For example: a cryptographic token that represents a number of loyalty points (loyalty by a customer) within a specific block chain, in order to manage a customer's profile in a supermarket or retail chain.
Next, we show you the different classifications of tokens that exist:
Security Token
A security token is a unique token issued on a blockchain and representing an asset. In other words, security tokens are the digital form of traditional investments like stocks, bonds, or other securitized securities; digitization -or tokenization- that gives them advantages in reducing costs, time and bureaucracy, compared to typical financial assets.
Types of security tokens
- Equity token: Also known as an equity token, it is a form of security token that represents the equity in an underlying asset, usually the shares of a company. In most cases it represents an asset, a property or a third party company. The most common are: stocks, futures, option contracts, tokenized real estate , tokenized companies.
- Debt Token: Represents a short-term loan with an interest rate. They could be real estate mortgages, corporate bonds, or other types of structured debt. The price of a debt token is dictated by risk and dividend.
- Asset or Commodity Backed Token: Each token that is issued is backed by assets, works of art, carbon credits, green bonds, production, reserves or commodities. As we have shown you in CryptoConnection , there are projects in Argentina and Mexico that are using this type of tokens.
Utility Token
Utility tokens are a type of asset that provides the user, in addition to possession of the token, a product or service; they can also function as a medium of exchange within a particular ecosystem. The value of a utility token rises and falls based on the dynamics of supply and demand; likewise, their listing may be tied to the popularity of the product or service they are associated with.
Examples of utility tokens
- Basic Attention Token (BAT): This ERC-20 token is used as a means of payment for content creators and publishers. The company behind BAT launched this token in order to help content authors (of all kinds) find income more easily.
- Golem (GNT): This is another ERC-20 token, based on a fully decentralized supercomputer, which allows the resources of said computing power to be rented to perform various tasks.
- Huobi Token (HT) or Token HT: It is the native token of the Huobi Global exchange. It is a decentralized digital asset, based on the Ethereum blockchain and that complies with the ERC-20 standard, which allows transactions, withdrawals and payments without the need to use a card. It also works without mobile data. Simply enter the app and select the "withdraw" option or the "token" option.
- Community Token: These tokens are centered around the concept of community. This collective element can take different forms: the participants of a Play-to-Earn game , the attendees of a metaverse experience or the group of users of a crypto platform. In general terms, they provide access to certain benefits, which may include discounts and rewards, special features or access to exclusive communication channels of the community (for example, the community channels on Discord, Slack or Telegram).
- Governance Token: This type of token gives the owner the right to participate in the decision-making of a project. It allows to propose new features, request changes, make corrections and vote for or against the other determinations that involve the initiative. There are many examples of this in decentralized autonomous organizations ( DAOs) and DeFi protocols, such as Uniswap (UNI) and Compound (COMP).
Non-fungible token (NFTs)
Fungibility is the property of a commodity whose individual units are essentially interchangeable. It can also be defined as the ability of an asset to be exchangeable for another asset with the same value. An example: a $100 dollar (USD) bill is equal to two $50 USD bills or 10 $10 USD bills. Therefore, fungible tokens are divisible assets, which are not unique and can be easily exchanged for another asset of the same type.
Non-fungible tokens (NFTs) are a completely different case. They are cryptographic assets on a blockchain with unique identification codes, metadata that distinguishes them from each other, and cannot be replicated. Unlike cryptocurrencies , NFTs cannot be traded or exchanged on an equivalent basis. If you want to know more about NFTs, don't forget that at CryptoCo Conexión we are very aware of this topic , we even have a special section totally dedicated to this type of tokens.
Application examples of NFTs
- Physical assets (tokenization of items such as houses or cars, for example)
- Virtual assets (collectibles, digital art)
- Gaming: avatars in video games
- Tickets and certificates: These can be represented by NFTs to authenticate and protect your property, and exercise associated rights.
- Fashion: any product of a brand can be tokenized. For example, the Prada label released 100 NFTs in Ethereum to accompany its latest Timecapsule clothing release. Buyers received a free NFT along with their purchase of physical merchandise from the latest collection.
- Content creation: series launches that only NFT holders can watch. For example, Mila Kunis and Ashton Kutcher raised $8 million USD in an NFT auction for their “Stoner Cats” series. Owners of the NFTs are guaranteed lifetime access to all future episodes of the series.
- Logistics: NFTs can be used to track a product containing metadata about its origin, distribution, and warehouse location.
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