Although Bitcoin may have been the very first cryptocurrency, it is in no way the only one in the blockchain world. With each generation of blockchain, new types of crypto assets with different types of use cases have emerged. As of today, there are more than 20K cryptocurrencies in the world, and this figure is constantly increasing.
In our today’s article, we will find out the main types of cryptocurrency, considering their key features and examples. Let’s get started!
Crypto Coins vs. Tokens: The Difference Explained
The prefix’ crypto’ is added to all digital currencies based on blockchain technology. They are immutable, not controlled by any country or organization, and their functioning is maintained by a decentralized computer network dispersed around the world.
A coin is a cryptocurrency that usually serves as a means of payment and operates on its own blockchain platform. These are Bitcoin, Ethereum, Monero, Litecoin, Dash, etc. Thus, coins are technically independent of other projects.
A token is a cryptocurrency asset created on the basis of an existing platform. The most common platform is Ethereum (ERC-20 standard). This way, developers do not have to write functional and secure code from scratch — it is enough to modify an existing one, which greatly saves time and other resources. The downside is that tokens have all the disadvantages of their donor platform. In the case of Ethereum, these are regular network overloads and high commissions.
Bitcoin & Altcoins
Initially, the term altcoin was applied to forks of Bitcoin such as Litecoin, Bitcoin Cash, Bitcoin Gold, etc. Over time, all cryptocurrencies except BTC received an alternative status and came to be known as altcoins — ETH, XRP, DASH, etc.
The term’ alt season’ means that the dominance of Bitcoin on the market has ended, while the total market cap of altcoins is actively growing.
Key Types of Cryptocurrencies by Purpose
Nowadays, there are many types of cryptocurrencies with unique purposes and use cases. Still, in our today’s list, we will consider only the main ones!
Store of Value
These cryptocurrencies are designed exclusively to secure transactions, act as a store of value, and usually have no additional functionality. Prominent examples of crypto coins in this category include Bitcoin (BTC), which is often referred to as digital gold, and Litecoin (LTC), known as digital silver.
Smart Contract Platforms
Such cryptocurrencies are designed to facilitate the development of decentralized applications (dApps) and smart contracts and allow third-party developers to run any dApps based on the platform. Prominent examples are Ethereum (ETH), which is the most widely used and popular smart contract platform, and Cardano (ADA) that aims to offer a more scalable and sustainable platform for dApps.
Exchange tokens are utility tokens that are used within the crypto exchange ecosystem to pay for services and as an investment asset to hedge risks during a market fall. Such tokens also provide users with various bonuses and benefits when working with exchange tools and products. A bright example of an exchange token is Binance Coin (BNB), which allows users to pay trading fees and make internal transactions.
These are gaming currencies for trading operations within a game (purchase of heroes, weapons, improvements) and in external markets. Popular gaming tokens can be bought on crypto exchanges, farmed in special pools, or earned right in a game. The most well-known gaming tokens are MANA (Decentraland), AXS (Axie Infinity), and SAND (The Sandbox).
Non-fungible tokens (NFTs) allow you to confirm the uniqueness of an asset, which gained the most popularity in the field of digital art. NFT is one of the varieties of cryptocurrency. Artists turn their paintings, videos, and music into a digital token with immutable data about the time of creation and the author and then sell them as NFTs on specialized marketplaces. The most famous NFT artwork is Everydays: The First 5000 Days by Beeple, with a record price of $69 million.
Utility tokens are a type of digital assets that are designed to be used within a specific ecosystem or platform to access goods, services, or functionalities and have no legal basis for existence. Such tokens are issued centrally by a crypto company to incentivize users and promote the adoption of their platform. For example, Binance Coin (BNB) is a utility token used for discounted trading fees on the Binance exchange.
Governance tokens are designed to give their holders the ability to participate in the decision-making process of a blockchain network or protocol by making proposals, discussing, or voting for them. Proponents of projects that use governance tokens believe that they allow for user control, which holds true to the original cryptocurrency ideals of decentralization and democratization. One well-known example of a governance token is Maker (MKR), which is used for governing the MakerDAO protocol.
Security tokens are digital analogues of securities that certify ownership and give owners the right to exercise their investment interests (the right to shares, dividends, a share of profits, etc.). These rights are written in a smart contract, and the tokens themselves are traded on exchanges. The circulation of security tokens takes place in accordance with the legal regulations of financial regulators in various countries. Examples of securities include stocks, bonds, ETFs, options and futures.
Stablecoins are one of the most popular types of cryptocurrency, which are designed to maintain a stable value by pegging their price to an external asset such as a fiat currency or a commodity at a 1 to 1 ratio. They are often used as a medium of exchange or a store of value that can provide stability in a highly volatile crypto market. The most popular stablecoins include Tether (USDT) and USD Coin (USDC), which are pegged to the US dollar.
Meme coins are a type of cryptocurrency that are created based on memes or internet jokes. They often have little to no intrinsic value or utility, and their value is primarily driven by community interest and speculation. Other features of meme coins include frequent use of pump and dump schemes, a strong dependence of their price on mentions of celebrities such as Elon Musk, and low liquidity. Thus, since Elon Musk started promoting Dogecoin (DOGE), the world has seen a huge number of new and very popular cryptocurrency memes, including the Shiba Inu (SHIB) and SafeMoon (SAFEMOON).
These tokens are associated with decentralized Internet applications. Web 3.0 is a new paradigm of the Internet, which is controlled by participants around the world and is defined by open networks with a customizable level of trust and protocols that offer services for storage, processing, fast transmission, data identification. Prominent examples of crypto coins in the Web3 category include Polkadot (DOT) and Chainlink (LINK).
Such tokens are created for fans of sports teams, music groups, and other similar communities. Most of the fan tokens are issued on a special blockchain platform Chiliz, which cooperates with such clubs as AC Milan, Barcelona, and Manchester City. Fans-investors are directly involved in the life of the clubs — they vote for the choice of the team’s motto, songs for celebrating a goal at the stadium, etc. Examples of fan tokens include ASR (AS Roma Fan Token) and ATM (AC Milan Fan Token).
Anonymous & Non-Anonymous
Personal information, such as the first and last names of participants in 60% of network transactions, can be tracked within 2-3 weeks. This principle is true for almost all cryptocurrencies, including the most popular ones.
No more than 10 coins on the market can offer complete anonymity. These are Monero (XMR), Zcash (ZEC), Dash (DASH), Komodo (KMD), etc.
More than 20K cryptocurrencies and tokens are registered on a popular data aggregator CoinMarketCap. In our article, we have presented only the most popular categories of digital assets to give a general understanding of how the market works and who the main players are. We are sure that as the industry develops, the cryptocurrency market will see more and more unique and promising coins.
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