Traders in the cryptocurrency market need to learn about its diversity and ever-changing trends to make desirable profits. Understanding Tokenomics (also known as Cryptoeconomics or token economics) is also a part of this learning process. Investors can study the economic institutions of distribution of different types of cryptocurrencies or blockchain technologies prevailing in the market. So, what is Tokenomics? How does it work? Let us learn everything about it in brief and figure out how to enhance crypto trading skills.
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Learn About Tokenomics: What Is It?
As mentioned earlier, Tokenomics are tokens that signify or classify different values and types of cryptocurrencies that traders can use in the market. These tokens can signify any service or value of any particular cryptocurrency. The economic transactions in the market depend upon these tokens or their predefined values. Just like crypto trading, these tokens do not require the validation or authorization of any financial institution or a third-party organization. However, traders must verify the authenticity of Tokenomics from a reliable source of information in the market.
How Does Tokenomics Differ From Cryptocurrencies?
Traders use cryptocurrencies to represent a particular monetary value, but Tokenomics can represent any form of asset or value. The latter is still a developing field, and its taxonomy is not always under market scrutiny. Many investors are yet to discover this concept and use it in their trade practices. The field still raises a lot of questions, but investors have the option of using any third-party help to get facts clear.
How Many Types of Tokenomics Are There?
Just like cryptocurrencies, Tokenomics also has some popular types of categories that traders can use to their benefit. These categories are based on the nature and usage of the tokens in the market. Here is a detailed analysis of the same.
Layer 1 vs 2
The layer 1 token is also known as protocol tokens and represents some kind of underlying blockchain itself. For example, the Ethereum tokens powered by Ether are layer 1 tokens. And the token that is built on Layer 1 falls under the second category.
Fungible Tokens vs Non-Fungible
The tokens that facilitate the interchangeability feature of its value and units are what we know as fungible tokens. On the other hand, the tokens that are unique to their value are what we know as the non-fungible.
Utility vs Security
Some tokens clear the Howey test and get the classification as securities. For example, ICOs (Initial Coin Offerings) are classified as a security. But the tokens that traders can use to raise funds are what we know as a utility.
Different Perspectives Used To Classify Tokens
Apart from the major classifications of Tokenomics as mentioned earlier, there are a few other perspectives that we can use to describe them. They are:
- Purpose: the purpose of tokens also state classification.
- Durability: In general, tokens are likely to stay stable in the face of attacks or censorship.
- Regulatory Status: This point explains whether or not tokens are easy to classify or regulate.
- Rights: Tokens have two rights, property rights for the traders or access rights, whichever is well-defined.
- Token-flow: Tokens can have a linear flow that traders have to destroy after use, or they can remain in constant circulation in the market.
- Supply: The supply of tokens may be unlimited or at a defined amount.
- Temporal: It explains that a token is not liable to have an expiry date.
Tokenomics is a vast and flourishing concept in the cryptocurrency market. Traders should use this study only after understanding its usage clearly. The volatility of this study is no different than cryptocurrencies. But one can take assistance from the best companies in the market to raise gains!
