Understanding the crypto taxonomy

All cryptos or tokens do not share the same type of attributes or are used in the same way, many people just buy them without researching their characteristics and that’s not a good investment practice.

An important fact to emphasize is that crypto-currency is the name given  to the native token of a specific blockchain (such as Bitcoin) and token is the name given  to the non-native token which is deployed in a specific blockchain (such as Tether). Yet, they are  all considered tokens at the end.

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Why does a taxonomy exist?

It’s a tool that helps investors/speculators understand in which kind of crypto asset they’re placing their money in. Actually, this classification seeks to clarify the case of use and the tokenized representation of a project vision.

1. Payment tokens

2. Platform tokens

3. Utility tokens

4. Security tokens

5. Natural assets tokens

6. NFTs

7. CBDC’s and Stablecoins

Payment tokens

Generally, these are the native cryptographic assets of the native blockchain. They are intended to have characteristics as liquid value, have a store value and medium of exchange like  common money.

Examples:

$BTC Bitcoin

$LTC  Litecoin

$DASH  Dash

Another type of payment token can also be private, this means the transactions P2P of the token cannot be traceable or visible by a block-explorer because these have a ring signature that hides the user's transaction history. For example:

$SCRT Secret

$XMR Monero

Platform tokens

Are defined by many experts as customer tokens due to its capabilities to support dApps. Examples:

$ETH Ethereum

$UNI Uniswap

$AXS Axie Infinty

Commonly these tokens are PoS (Proof of Stake) instead Proof of work mechanism algorithms, which means many other blockchain developments can be found, such as BSC Binance Smart Chain, AVAX Network or Solana.

Application tokens:

These are designed to bring access to dApps services or governance rights. There aren’t many differences between the last type and these ones, however its use has been increasing in order to highlight that they are for utility, not for platform services. We can find:

$FIL Filecoin

$BAT Brave token

$BTT BitTorrent

Non Fungible Tokens (NFTs)

Many people have heard about Bored Ape Yacht Club or Otherside metaverse, those are examples of NFTs. 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.

Security tokens:

These represent another asset that can have financial value (physical or not). With these security tokens the term of tokenization or fractional ownership or equity is introduced. They always run on an existing blockchain.

$SWM Swarm

$POLY Polymath

Natural Asset tokens:

This type of token guarantees the tokenized representation of goods like water, gold, gas, carbon and oil, etc. They are deployed in a self-blockchain or an existing one.

$SUN Sun token (Exchange for trade energy)

$PAXG PAX Gold

Central Bank Digital Currency & Stablecoins

Both of them are intended to be pegged with a Fiat currency value (such as dollar or euro). However, they have some differences that are important to highlight. The first one being that the CBDC is managed by the government and it’s backed straightforwardly by public-fiat cash. Stablecoins are a special case because they have a degree of decentralization and of collateralization. There are custodial/ non-custodial (means if an entity is controlling all the supply or not) and Off-chain collateral (fiat cash located on bank accounts) and on-chain collateral (by another asset) respectively.

Examples of CBDC:

Digital Yuan

Digital Ruble

*However, their use is experimental at the moment.

Examples of Stablecoins:

USDT - Custodial & Off chain collateral

DAI - Non-custodial & On chain collateral

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