First thing first, the question asked above is completely incorrect. This has single handedly created so much confusion in the minds of new investors and I was no exception to it. When you use the word ‘Currency‘ with something, our mind immediately considers it as a medium of exchange. However, that’s absolutely untrue. Secondly, there is a huge difference between a coin and a token. I covered that in the blogpost last week here. If you haven’t read it yet, I would recommend that you go through it first.
Now that we have the basics sorted, let’s find out what actually is meant by different types of cryptocurrency (as mentioned, more accurate term would be crypto and not ‘currency‘). When people generally ask this question, they are basically referring to the different type of tokens out there. Why? Because there’s a subtle difference between the two. (Explained here) So in today’s blogpost we are going to talk about just that. What are different types of cryptocurrency or to be technically correct, different types of tokens out there?
A. Platform Tokens:
These are the tokens which are created to support a decentralized application. For example, Uniswap is a decentralized exchange meant for swapping different ERC20 tokens. However, Uniswap also his it’s own token called UNI. Right now UNI has no specific use case and is intended to be a governance token (more on it in a while), but it is handed out to people who invest in the liquidity pools and later can be used for yield farming etc.
B. Wrapped Tokens:
For the normies who are well versed with stock markets, think of these like ETFs. Imagine that you plan to buy gold but don’t have the money to buy an entire gram (or whatever the minimum unit is). In that case, you could purchase a tokenized form of gold for as low as Rs. 100. That way you don’t have to care about minimum investment and other factors like storage, counterfeits etc.
Now take that example and expand it to all the assets you could think of. Silver, Copper, Iron etc. etc. So basically you could WRAP an asset in a packet and trade using it securely through blockchain.
C. Stable Coins:
Well, this is another blogpost in itself and guess what? I did write about it a few days ago. Here’s where you can explore more.
For the rest of us, stable coins are mostly like wrapped tokens but instead of a commodity they mimic the price of a fiat currency. This could be Dollar, Yen, Euro, you get the idea. Some of the examples of stable coins would be DAI, USDT, USDC etc.
D. Utility Token:
I will instead start with an example which would instantly make it clear. There’s a Bangalore based startup called Drife. It’s a Decentralized Uber based on Blockchain. The $DRIFE token is used to pay the drivers for rides.
Another one? There’s a metaverse project called Decentraland. People use the currency of that metaverse called $MANA to purchase virtual land.
I hope you get the idea. Utility coin is something that has a purpose within the project ecosystem. This purpose could be anything tangible in nature.
Oh, and if you still haven’t figured out, Fuel Coins are the biggest examples of utility tokens. For example ETH, SOL are used as gas money for all transactions on Ethereum Mainnet and Solana blockchains respectively.
E. Governance:
Are you into stock market? If yes, then you must be aware about the annual general meetings companies conduct regularly. As a share holder you are free to join these meetings and also vote on certain decisions. More the number of shares you hold, greater is the value of your vote OR so to say, 1 Share = 1 Vote.
In a crypto parlance, this is what a governance token can achieve. In the example that I quoted above, UNI might take the shape of a governance token in the future. So if one fine day Uniswap decides to increase the swapping fee from 0.3% to 0.6%, these token holders will be able to vote on that decision.
Conclusion:
Even before you get into tokenomics, it is very important to understand the actual use case of the token. It gets a lot easier if you try to approach it by categorizing it in one of the above categories. Are you planning to kickstart your crypto journey? CoinDCX provides a highly user friendly and safe platform for beginners.
So, did I miss anything? What accprding to you are different types of cryptocurrency?
Got questions? Want to take it to the next level? Reach out to me using your preferred platform from the links below
Until next time..
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