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Cryptocurrency is part of the new wave of digital technology that will be acceptable and safe in the long run. Bitcoin is the most obvious one, but there are several others also being worked on to be made public and workable in the next decade. Knowing them and their differences are very important for investors because they tell you what the investment is in. Coins, tokens, stablecoins, utility tokens, and security tokens are the five types of cryptocurrency that people should know about. First, coins versus tokens.
Every different cryptocurrency is either coins or tokens. The main difference is that coins have their individual blockchain and tokens don’t. Bitcoin, Ethereum, and Ripple are coins, meaning they have their own blockchain, which is a decentralized, network that lists all transactions that take place. With tokens, the Ethereum blockchain is known for making tokens within the blockchain. They include the 0x, Maker, and BAT, all being ERC-20 tokens. They work as currency within that single network of Ethereum. Bitcoin is known as digital gold because they can be exchanged quickly and be converted from dollars faster than a token.
With tokens, they are released as an ICO, or Initial Coin Offering. ICOs give investors access to certain services or even have a piece of the company. Tokens are listed under various SEC regulations; tokens can be split into two various cryptocurrencies that are either a utility or a security. The difference of those two types is important to investors, companies, and the government, especially when it comes to regulations in the SEC. They have stricter regulations for security tokens than utility tokens because the former are listed as digital securities. To them, most tokens are utility tokens, and tokens can mean exclusive access and discounts.
Then, there is the Basic Attention Token (BAT), a utility token that is an exchange for digital advertising attention. BAT works in three ways: users get BAT for letting ads being viewed, when users view ads on a creator’s site, and when advertisers use BAT to buy ad room. Security tokens, however, are a piece of ownership, like a stock, thus are regulated closely by the SEC. To get a security token, you need to an accredited investor. You can then use the Howey Test which cites a cryptocurrency investment as possibly speculative, where money is based on the work of a third party. They must come from a token issuance platform to buy and trade these tokens and users need to meet requirements.
Finally, there are the stablecoins, which are gaining in popularity because they are connected to regular assets like paper currency or gold. Being in a bear market, stable coins allow investors to move their money into the stablecoins from more hostile cryptocurrencies. Stablecoins are tokens and don’t have their own blockchain. The problem with all of these cryptocurrencies is that the differences are blurring. As the digital currency world develops, all investors should know the value of what they are looking at and how SEC regulations will affect it because of their mysterious nature.