Most Popular Types of Cryptocurrency: A Complete Beginner’s Guide 2022

The Bitcoin network was launched over 13 years ago on January 3, 2009. Since then, many digital assets have appeared on the market: bitcoin, altcoins, wide varieties of tokens, stablecoins, NFTs, DeFi tokens, and even meme coins. To help a novice crypto investor in choosing, we have compiled a detailed guide on key types of cryptocurrencies and found out how they differ from each other. Let’s get started!

Bitcoin (BTC)

Bitcoin is the first and main cryptocurrency on the market. It stands apart from all other crypto assets since its price determines the state of the crypto sector in many respects.

BTC was launched in 2009 by an anonymous developer or group of developers under the pseudonym Satoshi Nakamoto. The coin was conceived as a digital analog of gold and a means of payment that would be completely independent of banks, financial regulators, and governments.

The coin has a limited and strictly planned emission: a total of 21 million bitcoins will be mined. At the same time, the Bitcoin network’s algorithm is designed to gradually decrease BTC mining, and the last bitcoin will be mined in 2140. Thus, the limited supply also makes bitcoin a defensive asset, helping its holders fight inflation under certain market conditions. 

At the same time, several copies, so-called forks, were created based on Bitcoin, which separated from the main Bitcoin network and made some changes to the code of their blockchain. The most famous among them are Bitcoin Cash and Bitcoin Gold.

Bitcoin is the very first but far from the most technologically advanced cryptocurrency. The Bitcoin network does not scale well — the maximum speed is 7-10 transactions per second, and the average block generation time is 10 minutes. Expensive fees make bitcoin unsuitable for microtransactions.

The Bitcoin network also has limited functionality: BTC can only be used for BTC transactions. Although the Bitcoin network supports smart contracts, they are practically not used. Another problem with the Bitcoin network running on the PoW algorithm is excessive energy consumption during mining.

Still, all these issues are solvable, and therefore nothing threatens the status of bitcoin as the main cryptocurrency in the market. 

Altcoins 

Altcoins is a collective name for all cryptocurrencies except bitcoin. The name originated when BTC dominated the crypto market without limits, and the rest of the cryptocurrencies were not distinguished by high market cap. 

Ether is also among them, the main altcoin and the second cryptocurrency by market cap. It appeared in 2014 under the direction of Vitalik Buterin. Ethereum, like Bitcoin, uses a PoW algorithm, but the project team has been working on switching to a more energy-efficient and scalable PoS algorithm for several years. And this summer, the project can finally switch to Ethereum 2.0.

The functionality of Ethereum is much wider than that of Bitcoin. Developers of the network realized that blockchain is capable of more than just conducting transactions and created an entire blockchain infrastructure. Ethereum was not created as a digital analog of some asset but as a smart contract platform. This is a whole digital ecosystem based on which other decentralized projects can be launched (smart contracts, dApps, or tokens). 

Still, Ethereum is not the only smart contract platform. Popular competitors include Algorand, Avalanche, BNB Chain, Cardano, Cosmos, NEAR Protocol, Polkadot, Polygon, Solana, TRON, and Fantom, among many others. But, despite this, all these blockchains fail to overperform Ethereum. 

Tokens 

Cryptocurrency is a digital asset that runs on its own blockchain. In other words, each cryptocurrency has its own chain of blocks, its own transactions, and network, whose functions are recorded in a blockchain, and emission is often limited — cryptocurrencies must be mined, for example, using mining or staking. 

A token is a digital asset running on top of an existing blockchain. However, its functionality is not recorded in the blockchain but in a separate smart contract, which also specifies features and functions of a token. Therefore, it is much easier to launch a token than a cryptocurrency — it can be done in a few minutes. 

Most often, a token plays a role of an internal asset of a project based on a blockchain. Unlike cryptocurrencies, which theoretically can be used to pay for anything, tokens are most often used to pay for internal services of a particular crypto project, less often to confirm ownership. 

There are several widely used token standards on the Ethereum, BNB Chain, and TRON networks. The main ones are: 

  • ERC-20 — based on Ethereum;
  • ERC-721 — NFTs based on Ethereum;
  • BEP-2 and BEP-20 — based on BNB Chain;
  • NEP-5 — based on NEO;
  • TRC-20 — based on TRON.

Utility Tokens

Utility tokens are intended for use in a project or ecosystem. Such assets allow users to perform some action on a particular network and provide access to a platform, product, or service. 

Popular utility tokens include:

  • Exchange Tokens — Binance (BNB), Bibox (BIX), Okex (OKW), Huobi (HT), Gate.io (GT), KuCoin (KCS), Hotbit (HTB), AAX (AAB)
  • Tokens from crypto projects such as the Brave Browser (BAT), the Chainlink blockchain oracle (LINK), and the Filecoin platform (FIL), among others.

Security Tokens

Security tokens are tokens that are analogous to securities. Unlike utility tokens, they do not provide access to service but ownership or a share in a project. One of the options for security tokens is tokenized shares, that is, tokens backed by real security and tied to its value. For this reason, security tokens are subject to securities laws, and their issuers must comply with the relevant regulation. 

Financial regulators have recognized many tokens issued during the 2017–2018 ICO boom as equivalent to securities over time. For example, the US Securities and Exchange Commission (SEC) accused Ripple and Telegram of issuing and selling unregistered securities under the guise of XRP and GRAM cryptocurrencies. Ripple is still suing the regulator, while Telegram has refused to launch its own blockchain. 

Governance Tokens

A governance token is a token that gives holders the right to vote when making decisions about the project’s activities, products, or functions. Governance tokens are most commonly used in DEXs, blockchain games, DeFi lending protocols, and decentralized autonomous organizations (DAOs). Such tokens are the main component of any community that develops without a leader or governing body — they are managed according to predetermined rules recorded in smart contracts.

DeFi Tokens

Decentralized finance tokens are dApps tokens that operate in the field of decentralized finance (DeFi). DeFi allows you to exchange crypto assets directly between users without middlemen in the form of exchanges and custodial services. In fact, these are just special programs that facilitate the use of smart contracts. 

DeFi has revolutionized the financial world and significantly advanced the crypto sector, becoming one of the main drivers of sector adoption in 2020-2021. Thanks to them, users can not only completely abandon middlemen but also retain full control over their own funds. Also, the DeFi sphere has expanded possibilities of passive income, allowing users to earn not only on rising asset prices but also on providing assets to liquidity pools, yield farming, and lending.

Most DeFi projects work on the Ethereum blockchain (64.49%), BNB Chain (8.15%), and TRON (5.91%). Major Ethereum-based DeFi protocols include Uniswap, SushiSwap, Compound, yearn․finance, 1inch, and Aave. 

Stablecoins

Stablecoins are fixed-price tokens pegged to the price of fiat currencies or other assets. Thanks to various mechanisms, their price remains more or less stable — this allows you to conduct crypto transactions and store your savings on the blockchain without the risk of high volatility. 

Stablecoins combine all the advantages of crypto and fiat currencies, including decentralization, blockchain, stable exchange rate, minimal commissions, and instant transfer to any country. About two-thirds of stablecoins are powered by Ethereum, and the most popular ones, such as Tether (USDT), operate on several networks at once, including Bitcoin, BNB Chain, TRON, and Tezos, among others. 

Stablecoins are in demand among traders on crypto exchanges and in cross-border transfers. They allow you to withdraw digital currencies into fiat, bypassing banking systems and international sanctions. After all, any holder can send another dollar stablecoin anywhere in the world without any obstacles — all you need is an Internet connection and a crypto wallet.

NFTs

NFT is a non-fungible token. Ordinary tokens or coins are identical to each other and can be freely exchanged within the network: by exchanging one Ether for another, you will still have one Ether. But each NFT token is unique, exists in a single copy, and cannot be copied or divided into parts. It’s like a ticket or a collectible stamp. Most NFTs, like other tokens, are issued on the Ethereum blockchain.

Most NFTs are sold on specialized marketplaces such as OpenSea, SuperRare, Sorare, Rarible, and others.

Read Next: What Is NFT: Key Advantages of Non-Fungible Tokens Briefly Explained

Game Tokens 

Game tokens are in-game items and assets of NFT blockchain games. The crypto gaming sector has even become a separate area in the crypto industry called GameFi. 

The most relevant trend here is P2E games (Play-to-Earn). In these games, users can earn hundreds or thousands of dollars worth of tokens per month. Popular P2E games include Alien WorldsAxie InfinitySplinterlandsCryptoBladesGods Unchained, and Upland.

Meme Coins 

Meme coins are crypto assets that were initially launched as a joke on some popular meme. They have almost no useful functions and intrinsic value — on the contrary, their obvious uselessness is emphasized. Other features of meme coins include frequent use of pump and dump schemes, strong dependence of their price on mentions of celebrities such as Elon Musk, and low liquidity.

In total, there are about a hundred relatively popular meme assets on the market. At the same time, the capitalization of the largest of them, such as DOGE and SHIBA, exceeds tens of billions of dollars. Investors love them because they can skyrocket by thousands and millions of percent in a short time and make rich those who are lucky.

The very first meme coin, Dogecoin (DOGE), is a full-fledged cryptocurrency with its own blockchain, a fork of Litecoin. But most meme coins are tokens based on third-party blockchains, most often on Ethereum or forks of Dogecoin. Other major meme digital assets include Shiba Inu (SHIB), SafeMoon (SAFEMOON), MonaCoin (MONA), and Hoge Finance (HOGE). 

Investing in meme coins is a kind of gambling on the crypto market, a lottery. If a user is lucky enough to buy a project coin that skyrockets, they can get rich.

Conclusion

More than 19,900 cryptocurrencies and tokens are registered on a popular data aggregator CoinMarketCap. In our guide, 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, there will be more and more unique and worthwhile coins on the market.

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