Despite the cryptocurrency market being just a decade old, there are over 2000 coins. A newbie might believe that all crypto coins are similar to Bitcoin. However, this is not the case; there are different types of cryptocurrency that have evolved in this nascent industry. While there are numerous subcategories and some coins that are hard to categorize, most crypto coins fall in these general categories:
Utility Tokens
These tokens offer an investor the chance to access products or services being provided by a project. This could be a discounted rate or exclusiveness. These tokens are associated with smart contracts and DApps. A good example of this is the BAT cryptocurrency. The BAT token works with the Brave browser. Users who view ads on this browser are paid using BAT tokens.
Security Tokens
These tokens work like traditional securities. When you buy the token, you are buying ownership in a real-world asset, which is located outside of a blockchain. Due to their peculiar nature, these tokens have comes under increased scrutiny by the SEC and other regulators globally. In the US, those who invest in these tokens have to be accredited investors. Various platforms such as Polymath or Swarm have to ensure investors meet regulatory requirements.
Privacy Coins
Privacy coins are crypto coins built with privacy in mind. They are designed to ensure that tracking of the transactions is difficult if not impossible. The transactions can involve value exchange or data exchange. These coins are created with the belief that central authorities should not be able to monitor transactions between individuals. Some good examples of these coins are Zcash and Monero.
Payment Currency Coins
Most of the major crypto coins by market cap fall in this category. Payment currencies are created as a means of facilitating payments just like fiat. One of the most famous currency coins is Bitcoin, which is also the pioneer of the crypto space. It uses blockchain technology to facilitate P2P transactions. Every transaction can be viewed by anyone with access to the network. However, only a specific user has access to privacy keys that allow them to decrypt their coins.
Stablecoins
Stablecoins are crypto coins whose value is backed by traditional assets. These assets could be gold bullion or fiat currency. A good example of stablecoins is the Gemini Coin. Facebook also plans to launch its stable coin dubbed Facebook Libra, which will be backed by a basket of fiat currencies.
Take Note of the Differences
If you plan to invest in the crypto sector, it is important to understand the category of the coin you pick. Some may come with major tax and legal implications. Besides that, it is hard to make money on others by trading on crypto exchanges. For instance, stablecoins may not make you as much money as BTC if you plan to make money based on price volatility.
Summary
The crypto sector is huge and entails more than just Bitcoin. If you plan to invest in this sector, ensure you take time to understand the different coins until you feel you are comfortable about your understanding of the industry.
Photo Credit To Vip Crypto Signals Via Flickr
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