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The crypto industry is known for many things, especially its asset diversity.
While cryptocurrency can be looked at as an umbrella term, it actually includes tens of thousands of tokens at any given time.
These tokens can be broadly categorized for simplicity.
If you plan to get involved in the crypto industry as an investor, you must know about the different types of cryptos and how they function.
These will help you know which crypto to buy, as well as the pros and cons of the different token classes.
In this article, we will list some of these for your consideration:
Traditional Tokens
Although cryptocurrencies themselves are not necessarily traditional assets, there are certain tokens that fit the general industry standard.
Think of tokens like Bitcoin and Ethereum, which are attached to specific blockchains and are typically used for either payments or speculative trading.
The value of these tokens is based on the forces of demand and supply, and they can be applied in a variety of ways.
Utility Tokens
Utility tokens are unique because they are attached to a specific project and are used to access functions within it.
An example of this would be the tokens like MANA, which are attached to a gaming project.
In this sense, the fortunes of the token are tied not just to the blockchain itself but to the specific project.
Utility tokens can be used to access services, be traded within universes, unlock rewards, and much more.
Utility tokens are more closely associated with projects of all types, and this is how they differ from traditional tokens.
Bitcoin, for example, is not associated with a specific game, movement, or so on, while tokens like MANA or TON are.
Meme Coins
These are cryptocurrencies that are based on specific memes or internet lore.
Meme coins are different from other tokens in that a lot of their recognizability and value is based on the community that enjoys the lore and the token for the sake of it.
In fact, many meme coins are explicitly stated not to have any practical function but are essentially bought for the sake of it.
Think of tokens like Pepe, BONK, Dogwifhat, and so on.
Some meme coins have actual use cases and proper tokenomics behind them, but if a token is based primarily on an instantly recognizable meme or pop culture lore, it falls under this category.
Fan Tokens
Cryptocurrency has proven itself to be a great way to bring people together, and various public entities have taken advantage of this.
Specifically, there has been a rise in fan tokens. These are tokens released by specific projects to connect their fans.
Examples of this include popular singers and even football clubs that have put out fan tokens.
These tokens typically have some sort of utility attached to them, and customers are encouraged to buy them for this reason.
Examples of fan tokens include PSG and Santos, and as time goes on, they only seem to grow in value.
Stablecoins
Stablecoins are cryptos whose value is pegged to that of a traditional fiat or asset.
Earlier, we noted how traditional cryptos see their value based on the forces of demand and supply.
Stablecoins, however, see their value rise and fall according to their pegged asset.
If a token is pegged to the US dollar, for example, its value will be whatever the US dollar is at any given time.
Stablecoins have gained a lot of use from investors who don’t want to deal with the high rates of volatility often reported with traditional cryptos.
Investment Tokens
One interesting application of cryptocurrency has been in the tokenization space.
This essentially sees investment vehicles like real estate, high-end art, and much more tokenized for investment.
In this sense, ownership of the project is divided into micro units and sold as cryptocurrency.
This means that rather than spending a million dollars investing in a piece of art, you can buy a cryptocurrency representing a fraction of ownership.
As these assets make money, the profits are distributed among investors who now have access to them.
Privacy Coins
Privacy tokens are based on privacy-preserving blockchains, which conceal the transaction history.
Unlike tokens like Bitcoin and Ethereum, you cannot see the transactions carried out using a privacy token on a blockchain.
Tokens like Monero fall under this category, and they have been somewhat controversial in the past for this reason.
While privacy tokens have been used for nefarious reasons, they are also a go-to for crypto users who value their privacy.
Final Thoughts
The crypto industry sees tens of thousands of tokens in existence at any given time, and these can become confusing.
But as we’ve noted in this article, there are a few broad categories that can aid in your understanding of the asset class.
Whether it’s privacy-preserving tokens like Monero or meme coins like Pepe, the crypto industry has a token and a token class that can serve every type of consumer and their needs.
I have over 15 years experience in the financial services industry and 20 years investing in the stock market. I have both my undergrad and graduate degrees in Finance, and am FINRA Series 65 licensed and have a Certificate in Financial Planning.
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