Cryptocurrency Tokens and their Value

As per Coinmarketcap, there are currently 1586 officially recognized cryptocurrencies available on the global marketplace. Each of these cryptocurrencies have their own unique feature whether it be cost-efficient payment processing, adding transparency to supply chains or proof of ownership for a specific asset. Despite the large number of tokens available, there is not an abundance of information on where the value of these tokens are derived from. We are going to touch upon a few of these tokens and provide examples using popular cryptocurrencies currently found within the global marketplace. As a brief tip, It’s important to note many cryptocurrencies can fit within a number of token types.

Token Types

Currency Tokens will be the first token type we analyze. Just as the name suggests, Currency Tokens are designed to be used as a payment mechanism between two parties in exchange for goods purchased or services completed. Simply put, these tokens are a store of value. Trustless payment transactions and transfers can take place without the need of an intermediary (such as a bank), are cost efficient to both parties, and are fairly simple to coordinate. Bitcoin, the original and premier cryptocurrency fits within this niche and provides its users with pseudo anonymous transactions that are all logged on the immutable public ledger known as the blockchain. While Bitcoin may no longer be the most efficient way to transfer funds between parties, it still reigns supreme in the crypto economy as it has the “first mover advantage”, which in turn allowed the coin to be adopted globally by a number of consumers and businesses. In addition to Bitcoin, we have identified a number of other Currency tokens which have the same primary characteristics as Bitcoin. Litecoin (LTC), Nano (Nano), and Stellar Lumens (XLM) are consistently noted as currency tokens with swift payment confirmation times and low fees. At the moment, Nano leads the pack with zero fees and its’ near instant transaction confirmations.

Utility Tokens offer users access to a service or network, where the true value of the token is derived from. A “real world” comparison to how a utility token is used would be how specific tokens give you access to play video games at your local arcade or amusement park. An example of these services in the digital asset realm can include storage solutions for data, incentivized participation and user growth on a platform, or even lowering the fees on an online cryptocurrency exchange. At this stage of the cryptocurrency ecosystem, it is not entirely uncommon to see a utility token created which only acts as a speculative instrument and has no actual use case. A few examples of functioning Utility Tokens include Siacoin (SC), Basic Attention Token (BAT) and Binance Coin (BNB). With Siacoin, users can rent out free space on their PC to the Sia decentralized network in exchange for payment in Siacoin. Users looking to purchase extra space on the Sia decentralized network can only do so by paying with Siacoin. The goal for Basic Attention Token is for advertisers to directly target individuals who are interested in their product or service. The users would view/interact with the advertisements and be compensated in BAT. The primary function (at the moment) of Binance Coin is for users on the Binance cryptocurrency exchange to reduce their fees when trading their cryptocurrencies. Further down the road, the Binance team plan to further implement Binance coin into their business plans which includes the creation of a decentralized exchange. The three coins mentioned above are just a few of the many examples of tokens available that offer actual utility to the product they are associated with.
Platform Tokens have been crafted to offer outside developers to write smart contracts on top of the specific blockchain. These smart contracts allow for both ICOs (initial token offerings) and DAPPS (decentralized applications) to be created on the platform. The most known and used platform at the moment is Ethereum, which uses the Ether token as “gas” to power the network. There have been hundreds of coin offerings launched on the Ethereum platform, bringing in billions of dollars worldwide. EOS alone brought in $4 Billion during its yearlong coin offering from June 2017 through June 2018 to help expedite the launch of their own blockchain platform. As previously mentioned, Ethereum also hosts a variety of decentralized applications (DAPPS) on the platform. While the dapps are not tremendously advanced, they still garner a large following. We have listed a few examples below:
  • Decentralized Exchanges (includes the well-known IDEX and ForkDelta exchanges)
  • Online Gambling (Casino games, dice rolling, and sports betting reign supreme here)
  • Cryptokitties (Collect, trade and breed non-replicable cats. The cats themselves are ERC-721 tokens)
  • Local Ethereum (person to person buying and selling of Ether via smart contracts)
Other popular platform tokens include NEO, Cardano and NEM. Reasons for choosing the aforementioned platforms over Ethereum include scalability and easier coding languages that can be used on the platform. As blockchain technology continues to advance over time, platform tokens are sure to continue to build upon the fundamental base platforms such as Ethereum have introduced to the blockchain/cryptocurrency community.