Not all cryptocurrency are the same. They have different purposes, from utility tokens that provide a service to tokens that transfer value. Tokenizing a certain industry (e.g. cannabis, music, entertainment) is also possible using digital transformations with the use of a cryptocurrency with a blockchain or distributed ledger. Although they were based on the foundations of decentralization, some are more decentralized than others. It is because of the problems of scalability. In order to become more scalable, many assets have become more centralized in order to handle more transaction volumes.
Platform Cryptographic Assets
Ethereum, NEO and EOS are examples of application development platforms. Developers can use these platforms like an operating system to build applications called DApps (Distributed Applications). They are based on the concept of gas as unit of cost for computation. The logic is encapsulated in smart contracts, which contain conditions for executing code that can perform transactions. Gas costs, measured in units called gwei, are smaller denominations of the main token like ether that are spent on processing the transaction (much like a transaction fee). Many proponents do not classify these assets as securities, but a platform token needed for operations on the network.
Payment Cryptographic Assets
Bitcoin is the classic example of a P2P digital currency or payment cryptographic asset. This asset class is used as a medium of exchange for payments on goods and services. The use of these asset tokens provide a fast and efficient way to transfer value for cross-border payments and direct payment transfers without requiring a third party like banks. This circumvents jurisdiction regulations, so there are plenty of legal implications regarding these assets. There are many of them based on the original Bitcoin architecture. Although Bitcoin’s token BTC was meant for payments, it is fast becoming a store of value.
These complement the main network of a blockchain. This enables BTC and other payment assets and other ledger assets to be transferred between multiple blockchains. These implement an off-chain solution and are primarily used for the purpose of scaling the network. It removes the burdens of transaction processing from the main network. However, settlements are still made on the main network to record the state of the transaction. Side chains merely facilitate the transfer of value while the main network records it. The Lightning Network is an example of this.
There are many ways cryptocurrency can be applied to real world business and financial solutions. It has also found its way to certain industries with interesting applications. Stablecoins are an example with the Tether project. This allows pegging fiat to a cryptocurrency asset for the purpose of trading in a volatile market. These allows traders to store the value of their fiat currency without losing from the speculative cryptocurrency market. Golem and Veritaseum are other examples of how tokens can be used for computing distribution and capital market connections. It is related to protocols, because applications run mostly on top of a protocol built for a platform.
Protocols refers to rules of a particular ecosystem. It can be in the finance or energy market. These tokens were designed with incentivization as a purpose. This allows more value to enter blockchain based cryptocurrency. Protocols provide a supporting layer for applications built to run on platforms. They are mutually beneficial to each other. For example the Ethereum protocol can be used to support smart contract development running DApps. In order to run the DApp it will use a protocol token like ether. The DApp itself can generate its own value using an application token as an incentive.