Altcoin categories: utility tokens, security tokens and others

The diversity of altcoins allows different actors to adapt to their own needs and goals.

Altcoins fall into two main categories: utility tokens and security tokens.

These categories can be further classified according to their use, purpose and function.

Utility tokens

Utility tokens are altcoins that can be used within a specific blockchain platform.

These tokens are usually needed to access or use a service or product.

The most well-known example is the Ethereum platform's Ether (ETH) token, called "gas", which is required to execute transactions and smart contracts on the Ethereum network.

Security tokens

Security tokens are digital assets that represent certain financial rights, such as ownership, equity, shares, voting rights or income rights.

These tokens usually represent the value of a business or project and can generate income or investment returns for their owners.

In addition, there are other types of altcoins, such as stablecoins, whose value is pegged to another asset, such as the US dollar or gold, to stabilise its value; and privacy coins, which focus more on the anonymity and security of transactions.

Understanding the different categories of altcoins can help us better understand the diversity of the cryptocurrency world and help investors, developers and users find the cryptocurrencies that are best suited to them.

Governance tokens

Governance tokens, or governance tokens, give their holders voting rights in a system of decentralised organisations (DAOs).

These tokens allow for community decision-making, where token holders can vote on changes to the system and thus directly influence the operation of the platform.

DeFi tokens

Tokens in DeFi, or decentralised financial systems, usually have usage and management rights.

These tokens are at the heart of many new financial services such as decentralised lending, exchanges and collateral.

NFTs (Non-Fungible Tokens)

NFTs represent unique digital assets in the blockchain.

While traditional cryptocurrencies such as bitcoin are interchangeable (i.e. "fungible"), NFTs contain unique information that cannot be copied or replaced.

They are often used to sell art, music or other digital content.

Yield Farming or Liquidity Mining tokens

These tokens are used in DeFi protocols, where users deposit assets into blockchain-based liquidity pools and receive new tokens as rewards.

These tokens often have usage, revenue generation and voting rights.

It is important to note that different types of tokens operate in different legal and regulatory frameworks around the world, and investors need to have a thorough understanding of the characteristics and risks of different types of tokens.