Tokens differ from cryptocurrency and altcoins in several ways. First, tokens do not have their own blockchain. Tokens are issued via, for example, an ICO or an Airdrop on a blockchain of other coins (such as that of Ethereum). In addition, tokens often also represent a product, title deed or part of a company.
Tokens often have to meet certain blockchain standards. The most utilized blockchain standards are the ERC-20 (Ethereum Request for Comment) token standard used by the Ethereum blockchain and the BEP-20 (Binance Evolution Proposal) standard used by the Binance Smart Chain. These token standards are aimed at establishing conventions that make it easier for applications and smart contracts to communicate with each other.
There are currently five different token types, with each token type having its own utilization. The five token types are:
- Asset Tokens: These tokens are used to represent a physical product. With an asset token you can, for example, have your apartment represented by a cryptocurrency. You do this by placing the rights of a certain product such as an apartment in an asset token. For example, when you tokenize your apartment, you could sell your home in part or in full by means of asset tokens via the blockchain.
- Security Tokens: This token type can be seen as an investment product. Security tokens are bought with the expectation to receive dividends or profit from them.
- Equity Tokens: Equity tokens are more of a subgroup of the security token. Security and equity tokens are tokens that represent a tradable security on a blockchain. The difference, however, is that an equity token is proof of the value of a company, just like a stock or a debt certificate.
- Utility Tokens: These tokens can be used to access or pay for a product or service of a particular crypto project. Utility tokens have a specific use case within the ecosystem of the blockchain project.
- Reputation Tokens: This token, also called a reward token, is a token type that is used within the ecosystem of a blockchain project. The amount of Reputation tokens you own determines your final status within the network. You can earn Reputation tokens by actively participating in the network.
