There have been a lot of recent developments within the crypto market. Crypto users from all walks have found different ways to integrate these digital assets into their business models and everyday lives. This surge in adoption has been accompanied by an increase in the number of types of blockchain assets in use today. Here are the four top types of blockchain assets and how they differ from each other.
Cryptocurrencies
The first type of blockchain asset seeing use in the market is cryptocurrencies. A cryptocurrency can be categorized based on its functionality. Cryptocurrencies function as electronic cash systems. These tokens provide users with a more efficient way to transfer value and monitor transactions.
The most famous and successful of these digital assets is Bitcoin. Bitcoin was also the very first successful cryptocurrency to hit the market. Bitcoin was different than its predecessors in that Satoshi Nakamoto, Bitcoin’s anonymous creator successfully solved the double-spend issue that had plagued earlier attempts to create digital money.
The double-spend conundrum refers to a hacking technique used by early digital money users. In a double spend, a user sends a payment to another party. Then, they will send the same funds to another party before the first payment completes processing. This hack causes the system to not register the first transaction in time which enables the hacker to “double-spend” the money.
The Purpose of Cryptocurrencies
There are many purposes that cryptocurrencies were designed to fulfill. One of their primary purposes is to create a more open and inclusive economy. The current system has a high bar in terms of the entrance. To even open a simple bank account a person must provide a host of personal information and meet credit and location standards.
While these requirements may seem simple, for many people they are not possible. For one, the current banking setup requires an enormous amount of infrastructure to support it. Items such as roads, electricity, security, and much more must all exist before your bank can provide service to locals.
Easier to Implement
Cryptocurrencies are much easier to implement because they simply require a smartphone and internet connectivity. Smartphones and high speed continue to expand globally and even in the most remote regions of the world, satellite data transmission is possible making cryptocurrencies a viable.
Additionally, these networks are open to the public. There are no gatekeepers on most cryptocurrencies. The software operates as pure code. There is no concern about your residence or identity. You can access these networks and use them to conduct basic transactions internationally in a permissionless manner.
Eliminate Centralization
Censorship is on the rise in centralized markets with financial warfare in use across the globe. Ever since the end of WWII, much of Europe and the world have been using a USD-backed financial system for international trade. This strategy worked well for only a few years. It was not long before the US began to use the system as a way to make countries tow the line.
The introduction of sanctions and other financial measures to harm a country’s economy is financial warfare. This style of warfare is extremely effective because it is designed to cause economic collapse. This strategy targets civilians who are meant to become enraged that their economy is failing. The concept is to then fuel the flames of discontent until they spill over into open regime change. This strategy is in use across the globe today with mixed results.
Cryptocurrencies are open and transparent. There is no way for a person to block a user’s transactions. The network operates as pure code which means that if the parameters are met the transaction will complete in a peer-to-peer manner. This technical structure takes away any censorship opportunities because there are no users in the position to censor.
More Efficient
It’s far cheaper to send cryptocurrencies like Bitcoin across borders versus fiat currency. For one, fiat currency transactions are subject to a lot of scrutiny and monitoring. Notably, over 36-different 3rd party groups play a role in monitoring your fiat transactions. Each regulator and third-party check adds to the costs and delays of each transaction. As such, cryptocurrencies provided much-needed relief to these users.
The delays and process become more intense as the value of the funding you send increases. Sending a few thousand internationally can cost up to 12% and take hours. In comparison, sending a million can take days. Sending any value across open blockchain networks takes minutes and costs pennies.
Currently, there are multiple crypto-based remittance firms in operation globally These companies help to cater to the millions of international workers and their families that depend on these payments to survive. Certain countries receive remittance payments as high as 3% of their GDP. For these nations, the introduction of cryptocurrencies has made life easier.
More Privacy
Privacy has always been a concern with cryptocurrency users and develops. In the early days maybe people believed that Bitcoin was anonymous. However, it has been revealed that the cryptocurrency is easily tracked with all actions available via a blockchain explorer. Despite the open nature of early projects like Bitcoin, there remains a strong demand for privacy-focused projects.
Privacy Coins
Privacy Coins integrate advanced strategies to obfuscate the origins and destination of your crypto. There are a lot of different ways to accomplish this task. One of the most powerful ways to make tracking your crypto more difficult is through the integration of zero-knowledge proofs. This technology enables transactions without revealing keys to the other party.
The way zero-knowledge proofs work is best described through a story. Imagine you have the missing part for a top-secret airplane and you needed to get it to the person with the plane. The problem is that you need to be sure they have the plane without revealing the plane directly. Additionally, the person needs to do the same with the part without letting you know anything about the plane.
To accomplish this task, you both begin asking each other questions about the object. For example, you could ask them to describe a feature of the craft’s performance or current state. Reversely, they could ask you to describe what the part you have does or the manufacturing process. After enough questions, it can be discerned if the parties possess the knowledge required and the transactions can complete.
Cryptocurrency Pros and Cons
Cryptocurrencies changed the game in that they provided the world with the first decentralized currency. As such, these systems operated in an open manner which enables users from around the world to participate in the digital economy without restrictions. Additionally, cryptocurrencies leverage blockchain tech to enable users to send value internationally in a frictionless manner.
One of the main cons of early cryptocurrencies is that their technology is now dated. Projects like Bitcoin remain relevant in the market. However, there are technological limits to their functionality. In the early days of crypto, acting as a currency was enough. Today’s cryptocurrencies must fill a variety of roles to be successful. This desire to create more flexible and capable coins led to the creation of utility tokens.
Utility Tokens
Utility tokens can act as cryptocurrencies but their primary purpose is to facilitate the interaction between users and services and features. Utility tokens came about after Ethereum introduced the world to the concept of smart contracts. These on-chain, self-executing programs enable utility tokens to fulfill a huge variety of roles in the market.
A prime example of a utility token in action is ETHER (ETH). Many people mistake the Ethereum network’s utility token, ETH, for cryptocurrency. While it’s true you can use ETH to send value, make payments, and trade, it also has a more important role in powering the Ethereum ecosystem.
Utility tokens can represent fungible assets that enable developers to create new ways to monetize, trade, and share value. Today, there are all types of utility tokens in use throughout the market. You have projects like Ethereum and Polkadot that use their utility tokens to empower developers. They provide users with an easy way to utilize and provide services in a manageable and trackable method.
Utility Tokens Pros and Cons
There are many pros to utility tokens. For one, they provide more transparency to business systems. Since every utility token transaction can be instantly monitored on public blockchains, they provide network users with real-time diagnostic and monitoring capabilities. Additionally, utility tokens open the door for entirely new markets.
Utility tokens are great at representing fungible assets like resources but they aren’t the best option when it comes to tokenizing unique assets or assets that fall under regulator protections. For these types of assets like stocks, bonds, and securities, another type of digital asset was required.
DeFi Tokens
Another type of utility asset is DeFi (decentralized finance) tokens. These assets enable users to access features and services of advanced DeFi networks securely. DeFi is one of the fastest-growing sectors in the market. The purpose of DeFi is to eliminate banks from financial services using direct blockchain technology.
Another example of a utility token is the META 1 Coin. It serves multiple roles within the broader METANOMICs DeFi ecosystem. Users must hold META 1 coins to interact with these services. For example, users can stake their META 1 tokens or store them in high-yield savings accounts to secure rewards.
Earning Opportunities
There are many new earning opportunities in the DeFi market. Developers continue to think of ways to provide yields to users. One of the most popular DeFi features for new users is staking protocols. Staking is a term that refers to providing liquidity to a smart contract for a preset time in exchange for returns.
The first staking protocols were used to secure PoS (Proof-of-Stake) networks. Today all types of staking options provide low-risk returns to users. Staking is ideal for new users because it doesn’t require you to risk your assets and it provides consistent returns. The more you stake and the more rewards you secure. Best of all, the staking calculator makes it easy to see what your rewards payout will equal.
High Yield Savings Account
The introduction of high-yield savings accounts to the DeFi sector was a major milestone. These advanced smart contracts enable you to secure interest for holding your crypto just like your bank. The main differences are that the system operates as a protocol and there are no gatekeepers. Additionally, the returns are much higher with the META VAULT paying out 10% versus the national average for fiat accounts at 0.03%.
Security Tokens
Security tokens provide users with a digital alternative to traditional options such as stocks. Like stocks, security token holders are eligible to receive dividends based on the performance of the project. These digital assets are strictly regulated and fall under the regulatory umbrella of the Securities and Exchange Commission.
Security tokens differ from utility and cryptocurrencies in their core coding. Security tokens integrate their regulatory requirements directly into the token’s smart contract. As such, you can’t transfer security tokens freely like utility and cryptos. Notably, many require you to complete KYC (Know Your Customer) and AML (Anti-Money Laundering) identity verification requirements.
NFTs (Non-Fungible Tokens)
Non-fungible tokens can represent individual assets on a blockchain. Unlike cryptocurrencies and utility tokens, they can’t be swapped for other NFTs without a difference in value. These tokens have found use in multiple industries including the gaming sector, ID verification, and the art world.
Since many NFTs are scarce, their value is assessed using different methods. NFT’s derive value from scarcity, use, and a personal connection to the collector. Consequently, there are NFTs worth millions.
The Wide World of Crypto
You are sure to get more out of your crypto experience now that you understand the types of blockchain assets in use today. The crypto market continues to reach new heights in terms of adoption and technological advancements. You can expect to see this growth continue and even increase as more systems go operational in the coming months.