Token Types Explained

There are two main types of cryptocurrencies – coins and tokens. Coins often work exactly like regular fiat currencies, such as dollars and pounds, in that they are used primarily as a form of payment.

Tokens are more functional and versatile. While they can be used simply as a means of payment, it is not their primary purpose. Tokens can be used to perform complex, specialized tasks such as store data, facilitate loans and convert currencies.

Tokens generally run on the blockchain of a larger coin. For example, the VeChain token runs on the Ethereum blockchain. They are not the usual choice to store value with because they are more utility-based. Bitcoin and Litecoin are generally used as a store of value because their volatility is predicted to reduce in the future and because they have no other function than to be used as payment.

Types of Tokens

There are various types of tokens in the cryptocurrency industry that all offer different features. The most prominent is the ERC-20 token, a common Ethereum token type. All ERC-20 tokens contain a uniform set of code that makes them compatible with other tokens of the same type. The main advantage is that it allows for efficiency and easy token implementation across software. For instance, all ERC-20 tokens can use the same MyEtherWallet account. ERC-20 tokens have specific exchanges like IDEX, 0x and Kyber Network that help make day-trading significantly easier.

An alternative to ERC-20 is ERC-223, another Ethereum token type but with extra features. One of which is that it is more ‘foolproof.’ With an ERC-20 token, you can either choose to send your money to an address or to a contract (a specialized piece of code). If you send them to the wrong place then they are lost forever. With ERC-223 tokens they wouldn’t be lost because the action can be reversed.

So far we have only discussed Ethereum tokens, but the world of crypto is much bigger than just one platform! A competitor to Ethereum is NEO, and with it comes the NEP-5 token type. NEP-5 tokens are essentially the same as ERC-20 tokens but they run on the NEO platform instead of the Ethereum platform. Some programmers favor NEP-5 because it offers more flexibility. A famous NEP-5 token is DeepBrainChain. Another alternative is WAVES tokens that run its eponymous platform, and NXT-2.0 tokens that run on the NXT platform.

It is important to note that all tokens automatically become part of a larger unit known as the platform’s ecosystem. These tokens keep the platform thriving and robust. This, in turn, raises the price of the platform and possibly other associated tokens too. It also means that adoption of the platform will grow which grows the whole ecosystem.

Deciding what type of token a business will develop comes down to the advantages and disadvantages that each platform provides. Many businesses choose ERC-20 tokens because Ethereum tokens are the most common, others will choose NEP-5 because it supports multiple programming languages, and some may pick WAVES tokens because they are easier to maintain. All these token types can perform intricate and complex tasks, and whilst ERC-20 tokens are the most popular they are not exactly better. It is likely that, in the future, we will see more tokens being produced on many other platforms too.

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Kai is a cryptocurrency copywriter and professional trader. He can often be found investigating various cryptocurrencies, whitepapers, and blockchain technologies. Kai has been a professional writer for 5+ years, and has invested in 50+ different coins and tokens. He also currently studies Law and Philosophy at university.