Types of Cryptocurrencies - Tokens

The blockchain brings together the three main types of cryptocurrency. We already discussed Bitcoin and Altcoins.

Finally, I must introduce you to tokens/dApps — the third main type of cryptocurrencies. Examples of these include Civic (CVC), BitDegree (BDG), and WePower (WPR).

Tokens (for dApps - decentralized applications)

The third main type of cryptocurrency is a token. Out of the three main types of cryptocurrency, these are the ones I find most interesting. Compared to the other two main types of cryptocurrency, they are completely unique in the fact that they do not have their own blockchain.

They are used on dApps (decentralized applications); these are the apps I told you about that can be built on blockchains like Ethereum and NEO. The dApps are built to use smart contracts, which is why they use tokens.

Their tokens don’t have to represent a physical thing like electricity or a house. They can instead be used to purchase things on the dApp or other interesting things like discounted fees and voting fees.

Tokens always have a price that they can be sold for, which is why some people buy them so they can sell them later for a higher price, instead of buying them to use on the dApp.

Because dApps are built on other blockchains (like Ethereum and NEO), a token transaction is still verified by the nodes on the Ethereum or NEO blockchain. This means the transaction fee is still paid with Ether or NEO, and not with the token.

So, to make a transaction on a dApp (i.e. to use a token), you must have some Ether or NEO (or whichever altcoin the dApp is built on) to pay for the transaction fees.