There have been a lot of recent developments within the crypto market. Crypto users from all walks have found different ways to integrate these digital assets into their business models and everyday lives. This surge in adoption has been accompanied by an increase in the number of types of blockchain assets in use today. Here are the four top types of blockchain assets and how they differ from each other.
The first type of blockchain asset seeing use in the market is cryptocurrencies. A cryptocurrency can be categorized based on its functionality. Cryptocurrencies function as electronic cash systems. These tokens provide users with a more efficient way to transfer value and monitor transactions.
The most famous and most successful of these digital assets is Bitcoin. Bitcoin was also the very first successful cryptocurrency to hit the market. Bitcoin was different than its predecessors in that Satoshi Nakamoto, Bitcoin anonymous creator, successfully solved the double-spend issue that had plagued earlier attempts to create digital money.
The double-spend conundrum refers to a hacking technique used by early digital money users. In a double spend, a user sends a payment to another party. Then, they will send the same funds to another party before the first payment completes processing. This hack causes the system to not register the first transaction in time which enables the hacker to “double-spend” the money.
Cryptocurrency Pros and Cons
Cryptocurrencies changed the game in that they provided the world with the first decentralized currency. As such, these systems operated in an open manner which enables users from the world to participate in the digital economy without restrictions. Additionally, cryptocurrencies leverage blockchain tech to enable users to send value internationally in a frictionless manner.
It’s far cheaper to send cryptocurrencies like Bitcoin across borders versus fiat currency. For one, fiat currency transactions are subject to a lot of scrutiny and monitoring. Notably, over 36-different 3rd party groups play a role in monitoring your fiat transactions. Each regulator and third-party check adds to the costs and delays of each transaction. As such, cryptocurrencies provided much-needed relief to these users.
One of the main cons of early cryptocurrencies is that their technology is now dated. Projects like Bitcoin still remain relevant in the market. However, there are technological limits to their functionality. In the early days of crypto, acting as a currency was enough. Today’s cryptocurrencies must fill a variety of roles to be successful. This desire to create more flexible and capable coins led to the creation of utility tokens.
Utility tokens can act as cryptocurrencies but their primary purpose is to facilitate the interaction between users and services and features. Utility tokens came about after Ethereum introduced the world to the concept of smart contracts. These on-chain, self-executing programs enable utility tokens to fulfill a huge variety of roles in the market.
A prime example of a utility token in action is ETHER (ETH). Many people mistake the Ethereum network’s utility token, ETH, for a cryptocurrency. While it’s true you can use ETH to send value, make payments, and trade, it also has a more important role in powering the Ethereum ecosystem.
Utility tokens can represent fungible assets which enables developers to create new ways to monetize, trade, and share value. Today, there are all types of utility tokens in use throughout the market. You have projects like Ethereum and Polkadot that use their utility tokens to empower developers. They provide users with an easy way to utilize and provide services in a manageable and trackable method.
Another example of a utility token is the META1 Coin. It serves multiple roles within the broader METANOMICs DeFi ecosystem. Users must hold META1 coins to interact with these services. For example, users can stake their META1 tokens or store them in high yield savings accounts to secure rewards.
Utility Tokens Pros and Cons
There are many pros to utility tokens. For one, they provide more transparency to business systems. Since every utility token transaction can be instantly monitored on public blockchains, they provide network users with real-time diagnostic and monitoring capabilities. Additionally, utility tokens open the door for entirely new markets.
Utility tokens are great at representing fungible assets like resources but they aren’t the best option when it comes to tokenizing unique assets or assets that fall under regulator protections. For these types of assets like stocks, bonds, and securities, another type of digital asset was required.
Security tokens provide users with a digital alternative to traditional options such as stocks. Like stocks, security tokens holders are eligible to receive dividends based on the performance of the project. These digital assets are strictly regulated and fall under the regulatory umbrella of the Securities and Exchange Commission.
Security tokens differ from utility and cryptocurrencies in their core coding. Security tokens integrate their regulatory requirements directly into the token’s smart contract. As such, you can’t transfer security tokens freely like utility and cryptos. Notably, many require you to complete KYC (Know Your Customer) and AML (Anti-Money Laundering) identity verification requirements.
NFTs (Non-Fungible Tokens)
Non-fungible tokens can represent individual assets on a blockchain. Unlike cryptocurrencies and utility tokens, they can’t be swapped for other NFTs without a difference in value. These tokens have found use in multiple industries including the gaming sector, ID verification, and the art world.
Since many NFTs are scarce, their value is assessed using different methods. An NFTs value is derived from its scarcity, use, and personal connection to the collector. Consequently, there are NFTs worth millions.
The Wide World of Crypto
You are sure to get more out of your crypto experience now that you understand the types of blockchain assets in use today. The crypto market continues to reach new heights in terms of adoption and technological advancements. You can expect to see this growth continue and even increase as more systems go operational in the coming months.