Cryptocurrency Is Just One Of Seven Types Of Cryptoassets You Need to Know About
You might call yourself a crypto investor. To be an educated crypto investor, however, you’ll want to pay attention to more than just cryptocurrency. As ranked by QZ.com, here are the seven types of cryptoassets investors should be aware of.
Let’s start with the biggest and best-known cryptoassets: cryptocurrencies. Cryptocurrencies like bitcoin are designed to be used in a similar way to traditional currencies. They act as a store of value and a medium of transfer. You can send bitcoin to someone in exchange for a good or service. You can store your wealth in bitcoin. Bitcoin and other cryptocurrencies show no signs of slowing down, and cryptocurrencies will likely continue to be the largest cryptoasset class moving forward.
Platform tokens are another huge class of cryptoasset. Ether (ETH) of the Ethereum blockchain is the world’s largest crypto platform token. ETH and similar tokens let you interact with a platform. In ETH’s case, you can use ETH to interact with decentralized apps on the Ethereum network. ETH is also traditionally used to participate in ICOs, as a growing number of companies launch their own tokens as ERC20 tokens. Cosmos, Aion, and ICON are all similar platform tokens.
Utility tokens are another term that’s widely used across the crypto community without a perfect understanding of what a utility token is. Generally speaking, utility tokens are programmable blockchain assets that can be sued within an application. Golem, for example, is a utility token. You can use Golem to access the aggregated power of the world’s smartphones – which is effectively a global supercomputer anyone can access using Golem tokens. As QZ explains, “think Amazon Web Services without Amazon.”
Security tokens, meanwhile, are another major cryptoasset. Security tokens are also the most controversial. Securities need to be regulated under national securities laws. The SEC, for example, is in charge of regulating the sale and exchange of securities within the United States. Securities tokens should come under the SEC’s jurisdiction, although it’s not totally clear what is and isn’t a securities token. Generally speaking, securities tokens are native digital bonds, equities, and other securities available for peer-to-peer trading without financial intermediaries.
Natural Asset Tokens
Some cryptoassets represent physical goods and natural assets. You can find blockchain-based representations of tangible goods like gold, oil, and carbon, for example. These blockchain-based assets can be sold, purchased, and traded as easily as any blockchain-based token. The Royal Mint of the United Kingdom, for example, recently partnered with the Chicago Mercantile Exchange to create Royal Mint Gold. It’s a digital gold token backed by real gold bullion reserves in the Royal Mint’s vaults. This is just the start: other commodities markets could become similarly “blockchainized.”
Cryptocollectibles are another popular type of cryptoasset, although they’re arguably among the worst-respected by investors. Nevertheless, just like real-world collectibles, cryptocollectibles can hold their value over time and may present a good opportunity. Look at CryptoKitties, for example. CryptoKitties allows users to buy, raise, and breed unique virtual pets. The Ethereum-based app made headlines in 2017 for almost crashing the Ethereum network with excessive transaction volume. Any unique blockchain-based digital asset can be transformed into a cryptocollectible.
A “crypto-fiat currency” may sound like an oxymoron. However, we’re seeing a growing number of national banks offer blockchain-based representations of their national fiat currencies. In 2017, for example, Venezuela launched a cryptocurrency called the Petro. It’s a blockchain-based, government-controlled currency backed by the country’s large oil reserves. The goal of a crypto-fiat currency is to make markets more efficient, embracing the benefits of blockchain assets while reducing the downsides of fiat assets. Investors get the best of both worlds – although theoretically, crypto-fiat currencies will match the value of their real-world fiat counterparts.
Conclusion: Diversification Is Always Important
Ultimately, the new cryptoassets class is already transforming industries around the world – from financial services to logistics to manufacturing. Some of the changes are linked to cryptocurrencies like bitcoin, while other changes are linked to one of the seven other types of cryptoassets mentioned above – from utility tokens to platform tokens and more. Educated investors will want to familiarize themselves with all of the cryptoassets listed above to ensure they understand the market.