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Types of Tokens

During and after ICO startups offer tokens to investors. They can be in the form of currency, contracts, debentures, receipts with an obligation to provide goods or services. Tokens vary by function.

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cryptoassetsrank.com Published on Sep 28, 2018
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During and after ICO startups offer tokens to investors. They can be in the form of currency, contracts, debentures, receipts with an obligation to provide goods or services. Tokens vary by function.

Equity tokens

These tokens are the same as ordinary shares but in a digital form. Their owners receive dividends, i.e. a portion of the company’s earnings or part of the commissions for the company's transactions.

For example:

The Sia network pays its shareholders 3.9% of its earnings. Its token holders can propose ideas for further development of the platform and vote for or against the ideas of other shareholders.

Currency tokens

This is a cryptocurrency that has speculative value. Investors buy it and when the exchange rate grows, they sell it for another currency or fiat money (dollars, euros). Currency tokens are used as payment tokens for transactions within the system.

Utility tokens

This is a digital currency that is used within a project and gives access to its services.

For example:

The Bitcomo advertising network allows you to purchase advertising services for your tokens. The number of tokens is limited by emission. Due to this, they can grow in price, if the service becomes popular.

Security tokens

This is a virtual investment asset, the purpose of which is to make a profit in the future. It can be anything: from coins backed up with gold and silver to coins supported by real estate.

The sales of asset tokens are regulated by the U.S. Securities and Exchange Commission (SEC). It equated this type of tokens to securities.  

A token is considered an asset if:

  • the profit increases due to the work of third parties;
  • the capital is invested into a common enterprise;
  • it is an investment.

Appcoins

The appcoins are used as payment tokens to pay for internal project services. These tokens give access to the functionality and new options for customizing blockchain applications. Application tokens are often confused with digital currencies, but there is a difference between them.

For example:

In the Steemit network you can get reward tokens by adding value to the project: creating useful content, promoting and advertising the project. Cryptocurrency (for instance, ethereum) can be mined or bought at an exchange.

Asset-backed tokens

These tokens are virtual obligations for real goods and services: a smartphone, a lawyer's services, etc. They are backed up and serve as a virtual counterpart of a real product or service.

For example:

A token can be equal to a square meter of an apartment or a cinema ticket. The conversion of the token is secured by the organization that provides goods and services.  

Hybrid tokens

This type of tokens combines the functions of several tokens.

For example:

A token of the ZRCoin project, a blockchain option for investing into the production of zirconium dioxide, combines the functions of an equity token, a loan and a certificate. The token owners can:

  • sell it at the current price;
  • exchange it for the basic asset (in this case, zirconium dioxide);
  • exchange it for the company’s shares.

Hybrid tokens can be used as a discount for the company’s product.

For example:

ICOS tokens allow you to vote when selecting an ICO project and purchase the tokens of the selected projects for half price.

What is asset tokenization?

It is a conversion of the real assets into a digital format of tokens in order to facilitate the work with them and to make it quicker and safer.

For example:

The seller has gold worth 20 million and the buyer is from another country. It is difficult to transport the gold because of the intricate security regulations and clearance procedures that must be performed in order to obtain physical and legal protection of the transaction connected with gold transfer. An optimal solution is to sell part of the rights.

The buyer has the money and wants to invest it into gold but in order to buy the metal he or she needs to secure a storage, to pass the registration procedures, to carry out the transaction and to organize safe transportation of the metal. An easier way is to invest. The buyer gets a share, while the gold remains with the seller. Thus, tokenization facilitates the buying and selling process.

Conclusions

  1. Startups use tokens to attract investors.
  2. Tokens are of different types and have different functions.
  3. Tokens ≠ cryptocurrency.
  4. Asset tokenization facilitates the selling and buying of the real goods.
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