The cryptocurrency world is full of jargon; acronyms and futuristic words that could be straight out of the latest sci-fi flick.
Along with cryptocurrencies like Bitcoin and Litecoin, there are many other different types of crypto assets that can be found on the blockchain:
Stablecoins
As the name suggests, stablecoins are designed for stability. These are cryptocurrencies that are directly pegged to real-world assets. These assets could be precious metals like gold, oil, or silver, or national currencies like the dollar and euro. Regardless of the asset, the value of each individual stablecoin aims to remain the same as the asset it represents: A dollar-backed stablecoin, for example, should be worth one dollar.
By tapping into the relative stability of real-world assets, stablecoins are designed to bring consistency to the cryptocurrency ecosystem. When volatility hits, traders can quickly swap cryptocurrencies back to a stable currency without the bother of converting to fiat.
Blockchain Platforms
Although most people refer to Ethereum as a cryptocurrency, the actual currency powering the Ethereum network is called Ether. As a currency, Ether lets users pay for processing power to run smart contracts on the network, or buy products and services within Ethereum like ICO tokens.
As a blockchain platform, Ethereum is designed to run smart contracts that form the infrastructure for a range of projects, like Microsoft’s Ethereum on Azure, and the Amazon Web Services blockchain framework.
Privacy Coins
Newcomers to Bitcoin often mistakenly think that transactions with the cryptocurrency are private. But, Bitcoin only offers pseudonymity rather than anonymity. All Bitcoin transactions are recorded on a public ledger under a code that can be traced back to a real-world identity with a little detective work.
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Anonymous cryptocurrencies—like ZCash and Monero—aim to provide all the benefits of Bitcoin in a completely private package. This means that, theoretically, no record is kept of the transaction.
Utility Tokens
Basic Attention Token (BAT) is an example of another category of cryptocurrencies: Utility Tokens. These cryptocurrencies aim to fulfill a specific need within a blockchain platform.
Unlike security tokens, utility tokens are not intended as an investment. Instead, they are more similar to a coupon offered by a store to be used specifically for their products, or a pre-ordered token that promises access to a service that is still in development. BAT, for example, is used as payment within the Brave Browser.
Tokenized Assets
Similar to stablecoins, tokenized assets are digital representations of real-world assets on the blockchain.
These tokens represent ownership of the underlying asset. If the asset was an apartment, for example, each token might represent a room. Ownership rights to that specific room would be written into the token smart contract, and the tokens can then be traded on a crypto exchange.
This has the advantage of providing liquidity, making it easier to trade traditionally illiquid assets like real estate, and also immutability, with the blockchain guaranteeing that ownership information cannot be easily changed.
Security Tokens
Security tokens are traditional securities, transposed to the blockchain. Just like ordinary shares, these represent the purchase of a small percentage of a company and might pay holders a share of the company profits, and confer certain rights—like the ability to vote on the future direction of the company.
Unlike Initial Coin Offerings, which are unregistered, security tokens should be fully compliant with SEC regulations.
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