The world of crypto can be confusing and intimidating. With so many tokens out there to invest in, what are you really buying? Here I'll break down some of the major categories of tokens so you can better understand the landscape of crypto investing. And of course, this is not meant to be financial advice!
Stores of Value (e.g. Bitcoin)
Think about why one invests in gold versus hard fiat currency. Gold is valued for its scarcity, independence from government control, and ability to store value over time. You can think of Bitcoin as ‘digital gold’ — a scarce, secure, and globally accessible, store of value that isn’t tied to any single country or economy. So the investment thesis behind buying BTC is that as more people and institutions adopt it as a hedge against inflation or an alternative to traditional currencies, demand will increase, driving up its value, much like gold in the physical world.
Platform Tokens (e.g. ETH, SOL, POL, OP)
When the internet was created, you couldn’t buy stock in the internet itself, but you could invest in companies developing its infrastructure (like Cisco) or applications (like Google and Amazon). With blockchain technology, however, you can effectively buy a piece of both the infrastructure and the ecosystem of applications built on top of it—such as by purchasing ETH tokens. The investment premise is that as the technology gains broader adoption and more applications are developed, demand for these tokens will increase, driving up their value.
Application Tokens (e.g. UNI, LINK, AAVE, BAT)
Application tokens are akin to buying in-app currency or credits for decentralized applications (dapps). These tokens typically give you access to specific functionality or governance within a particular protocol or service. For example, owning UNI tokens gives you voting rights in the Uniswap protocol, and LINK is used to pay for data & services on Chainlink’s network. The value of these tokens is tied to the success and adoption of the individual application they support. As the use of the application grows, demand for its token increases, potentially driving up its value.
Stablecoins / Programmable Money (e.g. USDC, USDT, EURC)
Stablecoins can be thought of as "digital dollars" (or Euros, etc), as the are always worth exactly equal to the currency they represent. For instance, depositing a dollar can give me 1 USDC coin that I can use for digital transactions as "programmable money". So stablecoins hold the value of underlying currency, without the volatility of other cryptos, like BTC & ETH.
Provable Digital Ownership (NFTs)
To represent ownership of digital assets, there is a class of tokens called "non-fungible tokens", or NFTs. These tokens are useful for representing digitally native assets such as access to websites, virtual real estate, video game items…and really anything where you need verifiable proof of your ownership. This is especially needed in the digital world where music, video, photos, and text can be easily copied and sent. The investment thesis here is about the underlying asset itself, based on its rarity, cultural significance, or utility, where its value can increase based on demand, scarcity, and desirability.
New Tokenization Use Cases (e.g. securities, real-world assets)
This category includes tokens representing real-world assets (RWAs) like real estate, commodities, or even stocks, which are tokenized and traded on blockchain platforms. Buying these tokens is similar to purchasing shares or commodities but with the added benefits of blockchain—such as faster settlement times, fractional ownership, and transparency. The value of these tokens is directly tied to the underlying asset, but they also open new avenues for liquidity and access to previously hard-to-reach investments.
Whether you’re new to crypto or trying to explain it to someone else, understanding what you’re really buying is key to making informed decisions. From Bitcoin’s role as digital gold to platform tokens like Ethereum driving decentralized applications (dapps), each crypto category serve different purposes. As the technology evolves, surely these categories will also.
...and remember, always do your research before diving in!!
