For Beginners: Payment Tokens

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Discussing what a payment token, its role in the crypto market, and why it’s so important for the industry

When talking about cryptocurrency, two of the most common words that you’ll hear are “coin” and “token” among other phrases and relevant terminology. It’s important to realize that not all tokens are the same, though, as cryptocurrencies can be further classified into different categories of digital assets. The payment token is one of the most important types of tokens, as it represents the purest form of a cryptocurrency. Any investor who is serious about understanding their own portfolio should first make sure that they’re completely aware of how different coins in the market are classified. So, with that being said, let’s go over what a payment token is, why it’s so important, and which cryptocurrencies fall under this classification.

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This is not financial investment advice.
This article will discuss what payment tokens are and why they’re so important.

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Terminology

Token: Token is a unit of value issued by a tech or crypto start-up, intended to be a piece in the ecosystem of their technology platform or project.

ICO: The cryptocurrency space's rough equivalent to an IPO in the mainstream investment world. ICOs act as fundraisers of sorts; a company looking to create a new coin, app, or service launches an ICO. Next, interested investors buy in to the offering, either with fiat currency or with preexisting digital tokens like ether. In exchange for their support, investors receive a new cryptocurrency token specific to the ICO.

Blockchain: The easiest way to understand blockchain is to think of it as a fully transparent and continuously updated record of the exchange of information through a network of personal computers, a system which nobody fully owns. This makes it decentralized and extremely difficult for anyone to single-handedly hack or corrupt the system, pretty much guaranteeing full validity and trust in each exchange of information.

• Familiarize yourself with these key terms in order to better understand how payment tokens work.

What’s A Payment Token?

As it turns out, there are multiple classification of tokens which every investor should understand before making investment decisions. While the two commonly known categories of tokens are utility and security tokens, payment tokens are another type of token that represents the most purest form of cryptocurrencies. This type of token has its own Blockchain and is often considered as a medium of payment.

Usually, payment tokens - otherwise referred to as simply “cryptocurrencies” - have no further function or link to other development projects. Speaking broadly, these cryptocurrencies’ purpose is to serve as mediums of inherent value similar, for instance, to cash or gold. They are designed to enable purchases, sales, and other financial transactions, as well as provide many of the same functions as long-established currencies such as the U.S. dollar or Euro.

• Payment tokens represent the purest form of cryptocurrencies, serving as mediums of inherent value similar to established fiat currencies. They aren’t considered securities but they are means of payment.

Popular Payment Tokens

Some of the most popular cryptocurrencies are actually payment tokens. These include Bitcoin, Monero, Ethereum, and many more cryptocurrencies which are built on their own blockchain and serve as a means of payment. These are usually some of the most popular cryptocurrencies and have been established as legitimate cryptocurrencies.

These cryptocurrencies are purchased through online exchanges and can sometimes be used to pay for things. More recently, we’ve seen an increasing number of businesses begin to adopt Bitcoin as a means of paying for their goods and services. Of course, payment tokens are still seen as an inferior medium of payment when compared to traditional fiat currencies which maintain their given value. Cryptocurrencies, on the other hand, change price values on a daily basis which could leave business that accept payment tokens with less money if the market goes down.

• Some well-known payment tokens include Bitcoin, Ethereum, Monero, and other cryptocurrencies which have their own blockchain and can be used as payments in specific cases. Despite their increased popularity, payment tokens are still inferior to fiat payments from a business perspective.

Other Types of Tokens

Of course, payment tokens are just one classification of tokens in the cryptocurrency world. Other types of tokens include security and utility tokens which serve their own purposes different from that of payment cryptocurrencies. As it turns out, these tokens are the two most commonly referred to classifications of coins.

Security tokens represents assets which can serve as stand-ins for real physical underlyings, companies, earnings streams, or an entitlement to dividends or interest payments. In terms of their economic function, the tokens are analogous to equities, bonds or derivatives. Conversely, utility tokens provide access to the goods & services that the project will launch in the future. Also, they can be used as a type of discount or premium access to the goods & services of the project.

• Security and utility tokens are the two most commonly referred to classifications of coins. They are much more common and are usually attained through ICOs.

Conclusion

With regards to the entire cryptocurrency market, payment tokens are not too common. In fact, most cryptocurrencies are either utility or security tokens, with the exception of the few payment tokens. These payment cryptocurrencies are actually some of the most popular coins out there, despite being heavily outnumbered by the others. It’s important to not mistake some of these cryptocurrencies with security or utility tokens, as they serve completely different purposes. Moving forward, keep an eye out for an increasing number of businesses to begin adopting the use of payment tokens, as the are still largely limited today.

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Which payment token do you use the most?
Let us know why in the comments!