Today I would like to examine exactly what each type of token is and some clear examples of how this works. Before I do, there has been some significant news out of Venezuela about cryptocurrencies which is worth mentioning.
With the economic crisis in Venezuela reaching levels that some are calling a humanitarian disaster, and inflation projected to reach 1,000,000% by the end of the year, President Nicolas Maduro is now turning to crypto to try and stabilise the situation. Oil and Venezuela go hand in hand when it comes to their native currency so it will be interesting to see how they plan on tying the new cryptocurrency to the price of a barrel, my concerns are with regards to the proof of the backing, ETH would be a great solution using Smart contracts, let’s keep an eye on the level of transparency the government provide.
This announcement might not be getting enough attention in the mainstream media, but it certainly is turning a few heads in the crypto space, especially considering they’re selecting the NEM blockchain as its network for the Petro coin.
Let’s turn our focus now to the main topic of today’s article, the types of Crypto you need to be aware of when navigating the market.
UNDERSTANDING THE THREE MAIN TYPES OF CRYPTOS TOKENS
WHAT ARE CRYPTO TOKENS?
The Initial Coin Offering (ICO) is an innovative crowdfunding model that allows start-ups to bypass traditional early seed investment. However, not all ICOs are created equal; in fact, there are at least three types of tokens issued through these crowd sales.
ICOs are primarily launched by cryptocurrency companies for funding their upcoming projects. Hence ICO tokens are essentially tokens that a company offers at the time of an Initial Coin Offering or ICO launch. Over hundreds of ICO tokens are launched every year and some of the popular ICO tokens that would be launched in 2018 include upcoming ICOs like Staramba, FriendUp and Idap.
Several crypto coins and tokens have entered the crypto space in the past couple of years. However, each of these crypto assets can be classified into three main types of cryptos, Utility tokens, Equity tokens and Asset tokens. In this article, we’ll dive deeper into explaining the different types of cryptos.
There are certain tokens that are bought during an ICO for a completely different reason. These tokens are referred to as Utility tokens. They are used for making in-platform purchases. For instance, an Initial Coin Offering may come up with a unique product that will require you to pay a few tokens created by them. After you’ve purchased these tokens at the time of the ICO launch, they will be available for buying their service or product.
Now, most of you might think, why shouldn’t we purchase these tokens after the Initial Coin Offering? Well, a number of ICOs provide tokens at a lesser price, particularly at the beginning of the sale of the token. Thus, if you’re interested in buying their service or product then buying them at the time of ICO would be convenient or better.
For instance, Power Ledger (POWR) currently trading at number 79 in market capitalisation and trading at $0.20.
POWR is the currency that facilities the Power Ledger economy. It serves as the measure of value used to allow for direct energy trading between businesses and households.
Empowering the public is a common theme found throughout many real-world applications of blockchain technology. The technology’s peer-to-peer nature makes it a resource for systems that aim to allow individuals to exchange goods and services without the need for central parties.
The need for decentralised solutions stems from the belief that intermediaries are often the greatest beneficiary in their respective systems. Proponents say removing intermediaries in favour of blockchain-based projects could lower costs and promote a reduction in the conflict of interest.
Power Ledger demonstrates what this process looks like in the real world. From a consumer point of view, the main difference is that utility tokens are not intended to be used in the same way as fiat currencies. This makes utility tokens different from digital currencies like Bitcoin and Litecoin, which aim to facilitate everyday spending.
Equity Tokens are used to finance the development of the network, but are not needed to access the services provided by the underlying protocol. As its name suggests, we can see Equity Tokens as crypto shares of a network.
In exchange for their investment, Equity Token holders are entitled to “dividends” in the form of revenue sharing or transaction fees in the network. For example, in the case of Sia, 3.9% of all successful storage pay-outs go to the holders of Siafunds, their Equity token.
The Siacoin is currently sitting at number 43 in market capitalisation and is trading at $0.005555 per coin.
Siacoin is a cloud data storage service similar to something like Google Drive, but also much different because it’s totally decentralized and private storage, also it is extremely cheap compared to the other competitors.
Siacoin brings the blockchain technology into the cloud storage space. Instead of building massive servers that cost a lot of money to maintain, they are actually building a network of people that anyone can join and lend out their free space to others and make some money.
It sounds quite genius if you ask me. We all have free space on our computers that we could lend and blockchain technology allows us to store the data securely,
To put things in perspective, Dropbox is estimated to be worth around $3.5 billion. Where Sia currently has a market cap of a little more than $500 million. So, it’s already quite big in comparison, and I would even say it’s rather inflated having the adoption rate in mind, and from a different perspective there’s also a lot of room for growth if Sia would grow as big as Dropbox.
In addition to the above, cryptocurrency enthusiasts should also be aware of the Asset tokens. Asset tokens indicate that the trader owns a physical, actual asset. Using a process referred to as tokenisation, the tangible assets, as well as a few non-tangible assets, could be converted and fractionalised into digitalised tokens, which represent that they partially own the said class of assets. The asset tokens provide retail investors with an opportunity to take part in the markets, which would typically be closed for them owing to large requirements of capital or hindered due to legal papers. The asset tokens are not as popular as other tokens owing to the fact that their price or value is associated with traditional assets and hence don’t offer a lot of potential to the investors, especially when compared to other digital tokens. But, this market is slated for a substantial growth in the years to come, especially if some of the leading commodity players choose to use this particular technology.
Some of the common examples of Asset tokens include Tether, Salt and LAToken. LAToken focuses on connecting cryptos to the actual economy by enabling holders of cryptocurrency to add diversity to their investment portfolios by allowing them to access tokens that are associated with the prices of the real digital assets.
The SALT Lending model, currently trading at $0.45, is straightforward. It’s like Lending Club for blockchain assets.
If you owned some BTC for example but needed some cash, you could borrow against them with the Salt Platform. They’ll be able to get clients ranging from the individual to the institution. That’s cool for a couple of reasons.
First, any blockchain asset could become liquid now. Second, by borrowing against your blockchain assets instead of selling them, you avoid a taxable event. I think Salt will ultimately be very strong because people are putting up real collateral. This one is backed by Erik Vorhees and has a very strong team.
In a world where everything might soon get tokenised, the Salt platform could become very valuable.
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