Understanding Crypto-Taxonomy

All cryptos, or tokens, do not share the same category of attributes and they are not all used under the same circumstances. Many people buy them without researching their background, and that is not a good investing practice.

An important fact to emphasize in, is that the coin’s name is based on the native token of a specific blockchain (such as Bitcoin) and the token's name is based on the non-native token which is deployed on a specific blockchain (such as Tether). In spite of it all, they are all considered tokens.

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Why does this taxonomy exist?

It is a tool that helps investors/speculators recognize which kind of crypto asset they are investing in. This classification seeks to clarify the type of use and the tokenized representation of a project’s vision.

There are 7 different types of tokens:

1. Payment tokens

2. Platform tokens

3. Utility tokens

4. Security tokens

5. Non-Fungible Tokens (NFTs)

6. Natural asset tokens

7. Central Bank Digital Currency (CBDCs) and Stablecoins

Let’s describe each one:

Payment tokens

Generally, these are native cryptographic assets of the native blockchain. Their intended characteristics include liquidity, they have a store of value and are a medium of exchange like common money.

Examples:

$BTC Bitcoin

$LTC Litecoin

$DASH Dash

Other types of payment tokens can also be private. This means the P2P token’s transactions cannot be traced. They are not visible through a block-explorer because they have a specific technology behind them that mixes up many transactions to hide the user's transaction input or output.

For example:

$SCRT Secret

$XMR Monero

Platform tokens

Many experts define them as customer tokens because of their capability to support dApps.

Examples:

$ETH Ethereum

$UNI Uniswap

$AXS Axie Infinity

Utility tokens:

These are designed to bring access to dApps services or governance rights. There are not many differences between the last type and these ones, however its use has been increasing, denoting that they are meant for utility, not for platform services.

We can find:

$FIL Filecoin

$BAT Brave token

$BTT BitTorrent

Security tokens:

They represent another asset that can have financial value (physical or not). With security tokens, terms like tokenization, fractional ownership or equity are introduced. They always run on an existing blockchain.

Examples are:

$SWM Swarm

$POLY Polymath

Non-Fungible Tokens (NFT):

Many people have heard about Bored Ape Yacht Club and Otherside; they are NFTs examples. Non-Fungible tokens are blockchain applications that represent ownership of any physical or digital asset. Their features are unique and uncommon. The most known standard of the token asset is ERC-721. Normally, NFTs are made for games, art, music, grants, or even real estate.

Natural Asset tokens:

This type of token guarantees the tokenized representation of assets like water, gold, gas, carbon, oil, etc. deployed on a self-blockchain or an existing one.

Some of natural asset tokens are:

$SUN Sun token (Exchange for energy trade)

$PAXG PAX Gold

Central Bank Digital Currency & Stablecoins:

Both are intended to be pegged with a Fiat currency value (such as the dollar or euro).

However, they have some differences that are important to clarify:

CBDCs are managed by the government and are backed straightforwardly by public-fiat cash. Stablecoins are considered a special case because they have a degree of decentralization and collateralization.

Stablecoins can be classified in terms of:

Custodial or non-custodial- This indicates if an entity is controlling the entire supply.

Off-Chain collateral- Fiat cash located on bank accounts (such as Tether).

On-Chain collateral-Through another respective asset (such as DAI).

Examples of Stablecoins:

USDT: Custodial & Off-Chain collateral, controlled by Tether.

DAI: Non-custodial & On-Chain collateral, governed by Maker DAO.

Examples of CBDC:

Digital Yuan

Digital Ruble

This is an important topic because there are many people who do not know the existence or don’t understand the relevance of the Crypto-Taxonomy. Another important thing to highlight is that most of these tokens are ERC-20 standard, which means that they are deployed on the Ethereum blockchain.

Although it is a theoretical area of discussion, this helps to understand the utility and motivation behind their use, and of course it allows the user to have the knowledge of what they are specifically investing their money in.

Taxonomy does not end here, Web3 technology is growing on a daily basis, and many more categorizations will be created in the future.

Source: assets.ctfassets.net

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analyst opinion

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Rubén Hernández

Rubén Hernández

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