In this content, you know 4 types of tokens to start investing in right now and diversify your cryptocurrency portfolio. Click and find out right now.
Today, there are different categories of tokens on the market and this can confuse those who are just entering the cryptocurrency sector or still have doubts about which is the best digital asset for their strategy.
If this is your case, don’t worry, because in this content you will learn about the main types of tokens to invest in and how to evaluate the best option to compose your portfolio. Read on to learn:
- What is token?
- 4 types of tokens to start investing
- How to know which type of token to invest in?
But before knowing the types of tokens, it is necessary to understand this concept well:
What is a token?
It’s likely that you’ve heard of the token, right? Outside the context of crypto assets, the token is a security key generator system. This key works as a kind of password for when customers need to use banking services digitally, such as internet banking.
When we talk about crypto-assets, a token is a digital representation of some real asset, that is, some good or service that has value, through its registration on the Blockchain. Understand what this technology is and how tokens are created:
How tokens work
Blockchain is a digital and decentralized ledger, where all transactions are recorded through encryption, in an automated and secure way.
In this way, real assets such as real estate, bonds, shares, objects, and even services are registered on the Blockchain to gain a digital representation, as a kind of digital certificate of possession, called a “token”.
This process of transforming real assets into digital assets is known as tokenization, making it easier to trade goods and services at much more affordable prices and with less bureaucracy.
Unlike cryptocurrency, which is related to the type of token aimed at payments, the term “token” encompasses a much broader range of digital assets. This is one of the main differences between tokens and cryptocurrency.
The main types of tokens are:
- Payment Tokens
- Utility tokens
- Security tokens
- NFTs (Non-fungible Tokens)
Next, you will know what each one of them is for and how to invest in tokens:
1. Payment Tokens
As the name implies, payment tokens have the main purpose of functioning as a means of payment for goods and services and can also be used as a store of value.
This type of token is associated with cryptocurrencies, which is why it is one of the best known.
We can say that they have the same function as money, however, they are digital currencies and their transactions are protected by encryption. Currently, the amount of type tokens is huge, for you to have an idea, only here at the crowded hub you will find more than 40 alternatives, among the best cryptocurrencies are assets such as Bitcoin (BTC) and Litecoin (LTC).
2. NFTs (Non-fungible Tokens)
NFTs represent the possession of a unique and irreplaceable item, whether virtual or physical, such as collectibles, online game items, and artwork.
So, buying an NFT is like also acquiring the right of ownership over the unique item that the token represents.
The most famous examples of NFTs are probably the tokens from the Bored Ape Yacht Club collection, bought by Neymar for millions of reais.
NFT is a hotly debated topic these days. In the last year, we’ve had an explosion of these tokens. However, it is still possible to find some doubts on the subject.
To clarify this, we prepared a video that tells the details about what NFT is:
3. Utility tokens
Utility tokens are a very common type of token, which attracts the attention of investors and users precisely because of their function: they grant access to a product or service to the people who own it.
This means that, unlike payment tokens, utility tokens are not designed to function as cash , but rather to offer unique benefits to their holders.
For example, a utility token may offer VIP passes, loyalty programs, discounts on exclusive products, voting rights or loyalty programs. This is the case with the Chiliz (CHZ) and Basic Attention Token (BAT) tokens.
4. Security tokens (Transferable Tokens)
Security tokens have their value linked to existing external assets such as goods and shares . Each token represents a fraction of that asset and can be traded. An example is Company Share tokens.
An important feature of this type of token is that, as it is linked to regulated financial products, a security token must comply with local laws and regulations applicable to securities.
How to know which type of token to invest in?
To know the best type of token for you to invest in, you first need to know your investment profile. Are you a conservative investor, who prioritizes safety, or a bolder one, willing to take more risks in search of higher profits?
Understanding these questions makes it easier to identify the tokens that make the most sense for you within your investment strategy.
For example, someone who considers themselves conservative will prioritize most of their crypto portfolio in more solid assets like Bitcoin, avoiding exposing a larger percentage of their equity to utility tokens from more recent projects.
This self-analysis, along with a study of market dynamics, is the first step to investing in crypto, from the first thousand reais in cryptocurrencies.
Another important point of a good investment strategy is diversification, fundamental for good risk management.
When building a portfolio, remember the importance of not concentrating all your assets on a single asset, as a way to dilute the risk of investments and avoid volatility.
And when it comes to diversifying, tokenization has facilitated access to low-risk, high-yield investment diversification alternatives.