Types Of Cryptocurrency
Get an in-depth understanding of the different types of cryptocurrencies and their uses, and learn how to make better crypto investing choices.
Cryptocurrency has become a regular topic of discourse in almost all financial discussions. As a substitute for fiat currency, digital currency is steadily gaining popularity in worldwide markets.
For the uninitiated, cryptocurrency is a sort of electronic money made possible with blockchain technology. Unlike fiat currencies issued by governments and controlled by financial entities, cryptocurrencies are fully decentralized, with no central authority issuing or regulating them.
The rise in cryptocurrency values has prompted many developers to want to get a piece of the action.
But the abundance of cryptocurrencies happened because blockchain technology is open source, so any developer can use source code to build something new. According to Investopedia, by March 2022, there were over 18,000 different cryptocurrencies.
However, is there any utility for so many cryptocurrencies? Are they any different from each other? In this guide, you’ll learn the answer to those questions while getting to know deeper the most relevant types of cryptocurrency. Tag along!
Top 10 Cryptocurrencies for Now
1. Bitcoin (BTC)
Market cap: $880 billion
Bitcoin (BTC) is the first cryptocurrency created in 2009 by Satoshi Nakamoto. BTC is maintained secure and safe from fraudsters because updates to the distributed ledgers must be confirmed by solving a cryptographic problem, a mechanism known as Proof-of-Work.
Bitcoin’s value has soared as it has grown in popularity. In May 2016, a Bitcoin could be purchased for around $500. The price of a single Bitcoin reached above $46,300 on April 1, 2022.
2. Ethereum (ETH)
Market cap: $415 billion
Ethereum is a favorite among programmers because of its potential uses, such as smart contracts that run automatically when conditions are satisfied and NFTs.
Ethereum’s popularity has increased over the years as well. Its price raised by more than 31,000 percent between April 2016 and the beginning of April 2022, from around $11 to over $3,450.
3. Tether (USDT)
Market cap: $79 billion
Tether is a stablecoin, which means it is supported by fiat currencies and has a theoretically equivalent value to one of those denominations. Tether’s value is intended to be more constant than other cryptocurrencies, which is why it’s appreciated by investors who are alarmed by other coins’ excessive volatility.
4. Binance Coin (BNB)
Market cap: $68 billion
Binance Coin is a cryptocurrency that may be used to trade and pay fees on Binance, one of the world’s largest cryptocurrency exchanges. Other than that, it can also be used for trade, payment processing, and even making trip reservations. It may also be swapped or traded for other cryptocurrencies.
In 2017, the price of BNB was only $0.10. Its price had climbed to over $445 by the beginning of April 2022, a gain of almost 445,000 percent.
5. U.S. Dollar Coin (USDC)
Market cap: $53 billion
USD Coin (USDC), like Tether, is a stablecoin, which means it’s backed by US dollars and aspires for a 1 USD to 1 USDC ratio. USDC is based on Ethereum, and it may be used to make international transactions.
6. Solana (SOL)
Market cap: $44.5 billion
Solana is a coin created to power decentralized finance, decentralized applications, and smart contracts. It engages a hybrid Proof-of-Stake and Proof-of-History mechanism to perform transactions rapidly and securely.
SOL’s price was $0.77 when it was first introduced in 2020. Its value had risen to about $136 by April 1, 2022, an increase of more than 17,500 percent.
7. XRP (XRP)
Market cap: $40 billion
XRP can be used on the Ripple network to ease the exchange of many currencies, including fiat and other popular cryptocurrencies.
The price of XRP was $0.006 at the beginning of 2017, rising to $0.83 by April 2022, a gain of more than 13,700 percent.
8. Cardano (ADA)
Market cap: $39 billion
Cardano is renowned for being one of the first crypto projects that use proof-of-stake validation. It uses its native coin, ADA, to enable smart contracts and decentralized apps.
The price of ADA in 2017 was $0.02. Its current price is $1.17 as of April 1, 2022, presenting a 5,750 percent rise.
9. Terra (LUNA)
Market cap: $37.5 billion
Terra is a blockchain payment hub for stablecoins that balances two types of cryptocurrencies. While TerraUSD and other terra-backed stablecoins are linked to the value of actual currencies, Luna works as a counterbalance. It is used to power the Terra platform and manufacture new Terra stablecoins.
Luna has gained 16,400 percent in price, from $0.64 in January 2021 to $106 at the beginning of April 2022.
10. Avalanche (AVAX)
Market cap: Over $26 billion
Avalanche provides blockchain software to build and execute smart contracts using a native coin, AVAX. Avalanche has developed significantly since its inception in 2020, owing in part to its low gas prices and quick transaction processing speeds.
AVAX’s price has increased over 2,000 percent from $4.63 to $97.58 between July 2020 and April 2022.
Are all Cryptocurrencies the Same?
While some may argue whether there are any differences between cryptocurrencies at all, learning to differentiate one crypto asset from another when there are so many can be tricky at first.
Most traders and investors usually have a particular classification system that makes the best sense to each of them. Even so, some standard methods can help you identify different cryptocurrencies based on how they are meant to be used.
With that in mind, this guide aims to categorize the most popular cryptocurrencies so our investing community can better understand how they function and why they could be useful when developing and diversifying their crypto portfolio.
To do so, we’ll be using the Messari methodology to generate the categories below, a prominent data and information aggregator for the crypto asset market.
Payment cryptocurrencies are digital currencies controlled by a distributed network of computers that use the same blockchain software. While some attempt to compete with cash, others concentrate on payments for a specific use case or sector.
Like Bitcoin, which was set to become an alternative to traditional fiat money, payment cryptocurrencies usually don’t have many more features aside from those required to define, transmit, record, and protect transactions on the network.
Coins that are backed by assets can also be understood as payment cryptocurrencies. These cryptocurrencies are usually tied to more traditional assets, like gold or real estate, and provide price exposure to more conventional forms of wealth while delivering the efficiency and transparency of crypto coins.
How do you pay someone with cryptocurrency?
The ways to use payment cryptocurrencies are evolving each day as traditional markets and platforms are increasingly accepting digital coins as a means of payment.
Besides enabling several types of online purchases and financial transactions, it is already possible to buy physical assets and items with crypto debit cards. While the user is expending crypto, the retailer receives fiat money through an instantaneous currency exchange.
Here are a few things that you already possibly buy with crypto coins:
- Car dealerships
- Technology and e-commerce products
- Jewelry and related accessories
- News media
- Real estate
Infrastructure coins are commonly used to compensate computers that execute applications on a blockchain software network.
Each blockchain will require its own infrastructure currency. For example, Ether is an infrastructure cryptocurrency since it’s required to build and operate decentralized apps on the Ethereum blockchain.
Infrastructure cryptocurrencies include tokens that are focused on interoperability. Their objective is to create a system that connects different blockchains and allows users to transact across them.
Where and how can you use it?
One of the main principles of infrastructure currencies is to operate on the blockchain’s consensus mechanism, especially the Proof-of-Stake. In this protocol, users can stake a coin to help pool operators verify transactions on the network and maintain its overall security.
This type of cryptocurrency can also be used in voting on blockchains that have coin holders taking decisions. In this scenario, when a new update or enhancement to the blockchain is suggested, coin holders can vote on it with their coins. Everyone who owns the cryptocurrency has a say in its evolution and development.
Financial cryptocurrencies assist users in managing other crypto assets. They can be used during trading transactions and to crowdfund seed-stage crypto projects, for example.
Financial cryptocurrencies with a higher level of complexity may potentially attempt to duplicate economic activities such as market making, lending, and borrowing. In addition, prediction markets cryptocurrency allow users to bet on the fate of certain events.
Where and how can you use it?
Financial cryptocurrencies will execute the financial services provided by the platforms they power.
The BAL coin, for example, powers the Balancer protocol, an automated market maker that allows users to create and add liquidity to trading pools. On the other hand, the COMP coin powers the Compound platform, which connects lenders and borrowers through a combination of smart contracts.
Service cryptocurrencies may provide means for using the blockchain to manage personal or business data. Their similarity is that they both assist blockchain-based financial products in gaining access to and vetting external data sources.
There are several scenarios in which blockchain technology may be combined with real-world applications. Because of that, many service cryptocurrencies seek to provide customers with digital identities and connect their real-world information to the blockchain.
Where and how can you use it?
The projects issuing service cryptocurrencies aim mainly to connect non-blockchain companies with blockchain platforms and services securely.
In this case, the coins are usually used to reward operators for retrieving data from external data sources, converting it to blockchain readable format, off-chain computing, and uptime assurances.
Media & Entertainment Cryptocurrencies
As the name implies, media and entertainment cryptocurrencies strive to reward consumers for content, games, gambling, or social media. They also play an essential part in powering digital worlds and metaverses.
Basic Attention Token, for example, is a media and entertainment cryptocurrency that aspires to better share value between producers and consumers in a fair manner.
Some of the most popular media and entertainment cryptocurrencies are:
- Basic Attention Token (BAT)
- LBRY (LBRY)
- Steem (STEEM)
- Viberate (VIB)
Where and how can you use it?
Media and entertainment coins aim to connect creative producers and users, and share value between them. Using the BAT coin as an example, it can be transferred between advertisers, publishers, and users based on their web behavior, and it’s designed to make commerce easier for all three parties.
Since users receive BAT for viewing ad content, publishers may offer higher-impact advertising, and advertisers can be confident that a willing audience is seeing their messages. Consequently, BAT has created a new type of digital advertising platform.
Users may keep their BAT, swap it for cash or other cryptocurrencies, or donate it to their favorite content providers.
Crypto Coins vs. Tokens
Coins and tokens are both types of cryptocurrency, although they serve distinct purposes. Coins are designed to be used as a kind of currency and are created on their own blockchain. For example, SOL is a cryptocurrency based on the Solana blockchain.
Tokens are also built on blockchains, but they are programmable assets that enable the formulation and execution of unique smart contracts. Outside of the blockchain network, these contracts may be used to establish ownership of assets. Tokens can be used to represent units of value, such as electricity, money, points, coins, digital assets, and more.
Any cryptocurrency based on the blockchain that isn’t Bitcoin is referred to as an altcoin. The term “altcoin” was coined as a shorthand for “alternative to Bitcoin,” and the vast majority of altcoins were created to improve Bitcoin somehow. Litecoin, Monero, Ethereum, and ZCash are examples of altcoins.
Despite the fact that most altcoins are based on the same fundamental architecture as Bitcoin and share some of its qualities, each one has its own set of benefits for investors. Some cryptocurrencies utilize different methods for generating and validating transaction blocks, like Proof-of-Stake or Proof-of-History. Some may provide additional functionality, such as smart contracts, or a benefit, like reducing price volatility.
Tokens are often generated and distributed via coin offerings, similar to a stock offering. They can be Value Tokens, Security Tokens, or Utility Tokens.
A token transaction, unlike coins, relies on smart contracts because it lacks its own blockchain; instead, it operates on the blockchains of other currencies. While BNB is Binance’s native coin, numerous other tokens can be used on the network, like BullPerk’s token BLP.
Tokens can represent value, but not always in a monetary sense. For example, there are non-fungible tokens (NFTs) that represent unique digital assets, as well as utility tokens that may be used as resource passwords.
Unlike fiat currencies, which all function as a store of value in the same way and can be exchanged for products and services, crypto coins and tokens can serve a variety of roles. While Bitcoin started the cryptocurrency frenzy a little over a decade ago, there are now dozens of alternative cryptocurrencies to learn about and invest in.
This guide gives a foundation about how and why cryptocurrencies differ. This knowledge might assist you in determining the best way to invest in cryptocurrency and how to build a crypto portfolio.
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Disclaimer. This material should not be construed as a basis for making investment decisions or as a recommendation to participate in investment transactions. Trading digital assets may involve significant risks and can result in the loss of invested capital. Therefore, you must ensure that you fully understand the risk involved, consider your level of experience, investment objectives, and seek independent financial advice if necessary.