In the most basic sense, a cryptocurrency token is a representation of value. Most often, tokens are issued on top of another blockchain that provides the infrastructure and rules for the token to exist.
The most popular examples are ERC20 tokens, which are issued on the Ethereum blockchain. Other popular blockchains that support the issuance of tokens include NEO, Stellar, EOS, TRON, and Waves.
There are many different types of cryptocurrency tokens, each with its own unique purpose and use case. Here, we’ll take a look at some of the most common types of tokens and how they’re used.
- Utility Tokens
Utility tokens are perhaps the most common type of cryptocurrency token. They are designed to be used within a specific ecosystem or application and provide users with access to the services or features offered by that particular project.
- Payment Tokens
Payment tokens are cryptocurrencies that are designed to be used as a means of payment for goods or services. Bitcoin (BTC) is the most well-known example of a payment token, but there are many others such as Litecoin (LTC), Bitcoin Cash (BCH), and Stellar Lumens (XLM).
Payment tokens typically have their own blockchain, but they can also be built on top of another blockchain like Ethereum.
- Security Tokens
Security tokens are a type of cryptocurrency token that represents an investment in a project or company. They are regulated by security laws and are often issued through an initial coin offering (ICO).
- Asset-backed Tokens
Asset-backed tokens are cryptocurrency tokens that represent a real-world asset such as gold, silver, or oil. One of the most popular examples is DigixDAO (DGD), which is backed by physical gold bars.
- Equity Tokens
Equity tokens are a type of security token that represents ownership in a company. They are similar to traditional stocks and can be traded on exchanges.