The concept of cryptocurrency and its investment model is not a new term. But the investment model has evolved and the hype for investment continues. Anyone can invest in crypto’s with trading platforms like Meta Profit.
Along with crypto, we have also been witnessing various jargon used in conjunction. Various terms like tokens and coins are being used alternatively.
While these terms may seem confusing, let us look at certain key differences in crypto.
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Understanding crypto tokens and crypto coins – is there any difference?
If you have been following crypto investment then you would have come across both terms. But did you know that there is a difference between both terms?
Both crypto tokens and coins fall under the larger umbrella of cryptocurrency. From an end-user perspective also both these terms do not have any huge difference. But then a crypto token can be broadly classified into three different types. These tokens are utility tokens, security tokens, and equity tokens.
Understanding utility tokens
Utility tokens take their primary role during an Initial Coin Offering phase. Yes, this token is mostly used as a promotional crypto token. This is a special type of crypto token and aims to garner wider attention. The token can generate sales or investment opportunities for a new cryptocurrency. You can buy a utility token using fiat currency or even another crypto. Such type of utility tokens allows providing its users with new services and rewards.
In most cases, these utility tokens are stored in the digital wallet of an investor. These tokens can come to use when an investor wishes to buy rewards.
The token is likely to fluctuate in price during the ICO phase. Depending upon project demand and other factors these tokens change their prices. The token will continue to generate profits and ends up making the project a success.
Is Bitcoin or Ethereum a utility token?
Both the above tokens are popular names in the crypto industry. The primary purpose of Bitcoin was to enable peer-to-peer transactions. It means an investor in the US will be able to send their cryptos over the network to one in the UK. This was possible through the non-intervention of banking agencies in the transaction process.
But are these two utility tokens? The answer is no. both have their purpose and allow for transactions to run on smart contracts. Both these above tokens have their operating platforms and other digital assets.
During the initial phases of the Ripple (XRP) launch, many investors wondered if this token may be a utility. But no, the primary purpose of XRP is to enable payment solutions that are faster and more convenient. The token also makes use of the Ethereum platform to ease these payments.
So what are some classic examples of utility tokens? A simple example here is the BAT token. It currently has more than 54 million users. More than 1 million registered content creators are working on this token. Both these together make this a utility token.
The price of this token has grown multi-fold since its launch through ICO. The token has today garnered much more attention than its initial launch price.
Understanding equity token
Now that we have fully understood the concept of utility token let us skip to equity token.
Equity token is a subset of the security token and offers various benefits to investors. The benefits range from rewards to being part of the decision committee. Every equity token is linked to an underlying stock value of the token. These tokens are mostly governed by certain laws and regulations. The terms and conditions on which these tokens can function are already predefined.
Most equity tokens are issued through the process of equity token offering. This is like the ICO process. The difference is that equity token holders have decision authority along with voting rights.
The voting benefits are available on the blockchain. Every investor on the blockchain network may leverage the same. Yet another benefit is here is the ability to receive rewards. Token holders get their share of profits through dividends or any approved model. Another key characteristic of equity tokens is their prices. The price of each of these tokens does not establish any connection with market demand. Instead, the token pricing links to its market performance.
Taylor is a freelance SEO copywriter and blogger. His areas of expertise include technology, pop culture, and marketing.