By Tofiq Aliyev
On Oct 16, 2020
The world is on the horizon of moving to digital from the conventional financial system. The things that relied on previously now seem outdated. As we move to digital, the digital environment evolves itself too. There is e-banking as a digital form of the conventional banking system. However, e-banking is also getting obsolete. As the crypto era begins, new tools and assets emerge. Those crypto things will be the future of the financial system.
As the cryptoassets begin to gain recognition from the crowd, there will be things that crowd is curious about them. With our blogs, we try to answer those questions. Types of cryptoassets are the first thing to begin. What are the types of cryptocurrencies? Mainly there are seven types of cryptoassets. We will investigate types in the next paragraphs.
What are the cryptocurrencies? Let’s firstly notice the word itself. Currency is a means of exchange, and crypto means that the security of the digital currency relies on cryptography. People used gold or silver in the past as a medium of exchange. They evolved and began to use paper money backed on those gold. As time passed, the gold standard demolished, and paper became independent. Paper money does not have value unless we believe that it is valuable. That believed paper money evolved to digital money. If we compare digital money and cryptocurrency, then we notice that they are abstract and expensive because we give them value. So, we should not discriminate against the cryptocurrency.
The cryptocurrencies have three main types; self-organizing, corporate, and state-based cryptocurrencies. The best example of self-organized currency is Bitcoin. As we experience so far, Bitcoin regulates itself, and it has protocols to follow. The community and the central developers of the Bitcoin design those protocols. Bitcoin does not follow any financial regulations, and it does not have a regulator. You can get broad information on our other blogs.
The pioneer to the corporate cryptocurrencies is Facebook. Libra is the cryptocurrency of Facebook. Facebook has more than two billion users. If Libra starts to work then even 10% of users, then it will make more than the whole wallet owner of the cryptocurrency. With the help of Libra, users can send coins as simple as sending a message. However, Facebook does not own Libra. Libra has its Independent Libra Association comprises various companies. If companies step to cryptocurrencies, then it will be a massive development for them.
State-based or state-backed cryptocurrencies are the currencies that created by the central governments. Those currencies seem more reliable and stable for most people. The Digital Currency Electronic Payment (DCEP) project of the Central Bank of China is one of them. Also, Russia, Senegal, Sweden, Venezuela, and Ecuador have similar ideas. Countries can benefit from it in various ways. They can track the payments and control the transactions. They can earn from the digital seigniorage, which is the difference between the face value of the currency and the cost of making that currency. The creation of the government-based cryptocurrency is stepping back from the initiative of the Satoshi Nakamoto. The concept of decentralized cryptocurrency will disappear.
Many people think that Bitcoin and Ethereum have the same functionality. However, it is a misconception of people. Bitcoin works only as cryptocurrency. On the other hand, Ethereum has broader functionality than being a currency. Ether is called a protocol token. Ether is a native token on the Ethereum platform. Protocols are the set of ideas that governs the system. For example, TCP/IP is the protocol of the internet. There is an application layer and a protocol layer. The protocol layer assigns instructions for application. So, with the help of different protocols, many applications can be run.
A utility token is a token that is issued to fund the development of the cryptocurrency. The chief function is to raise funds. Augur is the most known type of utility tokens. It is a betting platform. Augur showed us how to get money using crowds. With the help of ICOs – Initial Coin Offerings, at least $3 billion funds raised by the community by 2017. Utility tokens can have applications in various fields. These tokens can offer services like using first to access companies’ products or other privileges. Ethereum is home for most of the utility tokens. Golem also assists you to harvest the power of the millions of computers for your use. Timicoin provides services in the medical sector, such as collecting medical data, online health monitoring. Basic Attention Token (BAT) is a blockchain-based advertisement service. If you are interested in any of them, you can try them out.
Security tokens offer ownership to securities and other financial instruments. As time passes, we can expect that the trade of securities and bonds will move to the crypto world. The traditional system contains many intermediaries such as banks and brokers, and if they move to the blockchain, then they will negotiate directly. Polymath, Smartlands are types of security tokens. Smartlands (SLT) provides services for the agricultural industry, and it is on the Smartlands blockchain. There are also Security Token Offerings (STO), this combines IPOs and ICOs in some sense, and one of the functions is fundraising. Companies can use any of the security tokens to get finance.
We have talked about the security token in the previous paragraph. Those tokens were not-tangible forms of the commodity. However, commodity tokens can be used for tangible goods too. For example, Perth Mint Gold Token (PMGT), DigixGlobal (DGX), PAX Gold (PAXG) are the gold-backed tokens. In PMGT, every gold-based token is backed by certificates on a 1:1 ratio and traded on exchanges. Natural asset tokens are somehow revolutionary. The main goal of those tokens is to save our worlds for the next generations. Earth token is one of them. This token meets the demand and supply side of the community. For example, instead of chopping down the trees, people get paid with Earth tokens to preserve nature. Also, companies, if they decrease the volume of the carbon emissions, they get paid Earth tokens. These tokens come from people who want to save the world for future generations. In conclusion, those tokens are useful in many ways.
Crypto-collectibles or crypto kitties are one of the exciting tokens. These tokens made public to attract people to the blockchain technology. These tokens are fun purposes in the blockchain. You can get crypto kitties and breed them as your pet. Of course, you cannot get a real kitty with that tokens. CryptoCrystal (personality-based minerals), CryptoVoxels (virtual world), HyperDragons (purchasing and trading dragons), Panda Earth are an example of crypto-collectibles. These tokens are also called NFT or non-fungible tokens. Since it is on the blockchain network and you cannot change it, copyright issues are minimum in this environment.
Crypto-fiat Currencies and Stablecoins are other types of tokens. The currency of the country backs the crypto-fiat currencies. Some governments decided to create crypto-fiat coins, but they were not successful. Those currencies did not get a strong reputation from the crowd. However, it showed that they could create crypto-fiat currencies. Stablecoins are those who peg the value to another currency, gold, even the cryptocurrencies. Their principal purpose is to minimize the volatility of their price. Main stablecoins are the Tether USDT, USD Coin, Dai, Binance USD. As you can see, USD is the main pegged currency. Creators of the Tether states that currency is backed by USD by a 1:1 ratio.
Cryptoassets will be wildly available in the future. Some people find it a worthwhile investment, and some do not. With the various types of cryptoassets will serve in different sectors. It is undeniable that knowledge about cryptoassets will be useful for the future.
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