If you are new to crypto, you might wonder how to differentiate cryptocurrencies in such a diverse ecosystem.
Besides their cool names, how do you separate one digital currency from another? Are there different types or categories of cryptocurrencies? And what are they used for?
Frankly, people might classify these assets differently. Or, state they’re all just one set of digital money.
There is no perfect system to sort it out, but this article will examine some of the most popular cryptocurrency types (categories) based on what they are built for and how they are used.
This information will help you when you pick assets for your crypto portfolio.
Before we get into details, let’s cover some basics and statistics.
How many cryptocurrencies are there?
Note: This number is constantly changing, and various resources have different stats, with new projects being born and some shutting down. Also, not all of these projects are very active. The top 20 cryptocurrencies make up nearly 90% of the market.
To make things clear and easier to understand, let’s cover a few terms used to describe cryptocurrencies.
Phrases “crypto coin” and “crypto token” are sometimes used equally, but these words don’t necessarily mean the same.
- Crypto coin – is a native cryptocurrency that has dedicated blockchains developed by the project to support its functionality. Examples: Bitcoin, Ethereum, or Cardano.
- Crypto token – rely on existing blockchain platforms for their creation and functionality. Examples: Uniswap, Dodgecoin, or MakerDAO are tokens because they run on the Ethereum blockchain (platform).
- Altcoin – any cryptocurrency (coins and tokens) excluding Bitcoin, often referred to as alternative coins.
Different types of cryptocurrencies
There are different types of cryptocurrencies. Namely, they include utility tokens, exchange tokens, gaming tokens, payment tokens, stablecoins, finance tokens, and privacy tokens.
P.S. More types of crypto can be selected, but these are the primary types often mentioned and used.
Image source: Uci.edu
Infrastructure (Platform) crypto
Infrastructure or platform cryptocurrencies are digital currency that serves as the foundation or underlying technology for decentralized applications (DApps) and any blockchain-based projects.
These cryptocurrencies typically provide the necessary infrastructure, tools, and protocols for developers to build and deploy their applications on top of them. They often offer features like smart contracts, scalability, and interoperability, which enable developers to create a wide range of decentralized applications.
Here are examples of platform cryptocurrencies:
- Ethereum (ETH): The most well-known cryptocurrency platform with ether (ETH) as a native token. It allows developers to build decentralized applications and launch their tokens.
- Cardano (ADA): It is a blockchain platform, with its ADA cryptocurrency. that aims to provide a secure and scalable infrastructure for developing decentralized applications.
- Polkadot (DOT): It is a multi-chain platform (with DOT coin) that aims to enable interoperability between different blockchains. Polkadot’s architecture allows the creation of interconnected para-chains (parallel chains) that can communicate and share data.
Payment cryptocurrencies are designed to be used as a currency for transactions and have many of the same functions as other currencies. Some focus on competing with genuine banknotes, while others concentrate on specific use cases or industries.
Payment crypto can be bought, sold, or exchanged for goods and services. Moreover, they can be used to purchase other cryptocurrencies.
Here are examples of common payment coins:
- Bitcoin (BTC): It is the first and most well-known cryptocurrency. It operates on a decentralized peer-to-peer network, enabling secure and direct transactions without the need for intermediaries like banks.
- Monero (XMR): It is a privacy-focused cryptocurrency that aims to provide secure and untraceable transactions. It utilizes advanced cryptographic techniques to ensure the privacy and anonymity of its users.
- Ripple (XRP): A digital currency and payment protocol that aims to facilitate fast, low-cost international money transfers. Developed by Ripple Labs, the protocol enables secure and efficient cross-border transactions, making it an attractive option for financial institutions and banks.
Exchange tokens grant holders benefits on cryptocurrency exchanges. These advantages often include early access to token sales held on the platform, trading fee discounts, and rebates.
In addition, exchange tokens improve exchange liquidity by providing the platform additional assets to draw on in market tightness. Exchange tokens can be traded on secondary markets or held for speculative purposes.
Here are common exchange token examples:
- BNB Chain (BNB): The native cryptocurrency of the Binance Chain and Binance Smart Chain ecosystems. It provides various benefits to its holders, including discounts on trading fees, participation in token sales, and access to other services on the Binance platform.
- KuCoin Token (KCS): It is the native crypto of the KuCoin exchange. KCS operates on its platform and offers several advantages to its holders. These benefits include reduced trading fees, access to exclusive promotions and events, and a share of the platform’s revenue through the KuCoin Bonus program.
- Huobi Token (HT): The native cryptocurrency of the Huobi Global exchange. HT offers various utilities and privileges to its holders. These include fee discounts, participation in token sales and initial exchange offerings (IEOs), access to premium features and services, and involvement in Huobi’s ecosystem development initiatives.
Privacy tokens are used for various reasons, such as upholding one’s right to privacy, conducting security investigations, and completing susceptible transactions. In addition, they can also be used for criminal activity and scams.
Privacy tokens incorporate different methods to ensure transaction privacy. This includes anonymity techniques like CoinJoin, coin mixing, and offline transactions.
Examples of the most common privacy token:
- Zcash (ZEC): A privacy-focused cryptocurrency with enhanced privacy and anonymity features. It utilizes advanced cryptographic techniques, precisely zero-knowledge proofs called zk-SNARKs, to shield transaction details such as sender, recipient, and transaction amount.
- Dash (DASH): It is a cryptocurrency strongly emphasizing privacy and instant transactions. While not solely focused on privacy, Dash offers optional privacy features through its PrivateSend functionality.
- Horizen (ZEN): Formerly known as ZenCash, it is a privacy-focused cryptocurrency and blockchain platform. Horizen’s main privacy feature is zk-SNARKs, similar to Zcash, which allows for shielded transactions that keep sender, recipient, and transaction amounts private.
Decentralized finance, often called DeFi, is a growing field of financial technology based on secure distributed ledger systems.
In general, one of the defining characteristics of DeFi is that it eliminates the fees associated with traditional banking and financial institutions. Other financial cryptocurrencies can be used to raise money, connecting investors with early-stage crypto projects.
Some of the most common financial token examples:
- Uniswap (UNI): A decentralized exchange protocol built on the Ethereum blockchain. It enables users to trade and swap ERC-20 tokens directly from their wallets without intermediaries. UNI is the native governance token of the Uniswap protocol.
- Compound (COMP): A decentralized lending and borrowing protocol built on the Ethereum blockchain. It allows users to supply cryptocurrencies as collateral and earn interest or borrow other assets against that collateral. COMP is the native governance token of the Compound protocol.
- Balancer (BAL): Balancer is an automated portfolio manager and liquidity provider on the Ethereum blockchain. It allows users to create and manage liquidity pools with multiple tokens and weights. BAL is the native governance token of the Balancer protocol.
Service (utility) crypto
Service cryptocurrencies, also known as utility tokens or utility cryptocurrencies, are digital assets designed to have utility within a particular platform, application, or ecosystem. These currencies enable using, access, or purchasing services, products, or features within the associated platform.
Service cryptocurrencies are often created by blockchain-based projects or decentralized applications (DApps) to provide a means of value exchange within their ecosystems. These tokens typically have a specific use case and are not primarily intended as investment vehicles or stores of value like some other cryptocurrencies.
Here are three examples of service cryptocurrencies:
- Basic Attention Token (BAT): A utility token integrated into the Brave browser ecosystem. Brave is a privacy-focused web browser that blocks unwanted ads and trackers while allowing users to view privacy-respecting ads. BAT is used within the Brave ecosystem to reward users for their attention and engagement with advertisements.
- Filecoin (FIL): A decentralized storage network enables individuals and businesses to rent unused hard drive space and earn FIL tokens.
- Golem (GLM): A decentralized marketplace for computing power. It enables users to rent out their idle computing resources or purchase computing power from others. GLM is the utility token used within the Golem network.
Stablecoins are cryptocurrencies whose value is consistent or pegged to that of another currency, commodity, or financial instrument.
There are three types of stablecoins: crypto-collateralized, fiat-collateralized, and algorithmic stablecoins.
Examples of popular stablecoins:
- USDT (Tether): Tether is one of the most widely used stablecoins in the cryptocurrency market. It is a fiat-collateralized stablecoin, meaning that a corresponding reserve of traditional currency backs each USDT token, typically the US dollar, held by the issuer. USDT is designed to maintain a 1:1 ratio.
- Binance USD (BUSD): BUSD is a stablecoin issued by Binance, one of the largest cryptocurrency exchanges. Similar to USDT, BUSD is also a fiat-collateralized stablecoin pegged to the US dollar.
- Dai (DAI): DAI is a decentralized stablecoin that operates on the Ethereum blockchain. Unlike USDT and BUSD, DAI is not fiat-collateralized but utilizes a unique mechanism to maintain stability. DAI is created and governed by MakerDAO, a decentralized autonomous organization. It is backed by collateral in the form of other cryptocurrencies, primarily Ether (ETH), which is locked into smart contracts as collateral.
Gaming tokens, or in-game assets representing a specific value. They can be traded with other players or used to purchase in-game items. Gaming tokens usually become more valuable as the popularity of the game increases.
Some games release tokens and allow players to earn while they play. Regardless, they all serve the same purpose: to provide an extra layer of value and investment for dedicated gamers.
Some of the most common gaming token examples:
- The Sandbox (SAND): A gaming platform that utilizes blockchain technology and non-fungible tokens (NFTs) to enable users to create, share, and monetize their virtual worlds and gaming experiences. SAND is the native utility token of the ecosystem.
- ApeCoin (APE): A gaming token associated with specific blockchain-based games that feature the “play-to-earn” model. These games allow players to earn ApeCoin tokens by participating in gameplay, completing quests, or achieving in-game milestones.
- Enjin Coin (ENJ): A cryptocurrency and ecosystem built around the gaming industry. It provides a framework for creating, managing, and trading virtual goods and assets. ENJ is the native token of the Enjin ecosystem and is used to back the value of in-game items and assets.
A meme coin is a cryptocurrency term for a coin supported by enthusiastic online traders and followers, sometimes depicted with comical or animated memes. While meme coins may be fun, they are also highly risky investments and may hold little or no intrinsic value.
Meme coins are cryptocurrencies typically featuring an animated character or animal meme image. Like other cryptocurrencies, meme coins rely on blockchain technology.
Some of the most common meme coin examples are:
- Pepe Coin (PEPE): A meme cryptocurrency inspired by the Pepe the Frog meme. It is designed as a playful and community-driven digital asset. As a meme coin, Pepe Coin often embraces the humor and cultural references associated with the Pepe meme.
- Dogecoin (DOGE): One of the most well-known meme cryptocurrencies originating from the “Doge” meme featuring a Shiba Inu dog. Its light-hearted and humorous approach gained popularity, distinguishing itself from more powerful cryptocurrencies.
- Shiba Inu (SHIB): Shiba Inu is a meme cryptocurrency inspired by the Dogecoin community and the popularity of the “Doge” meme. It features the image of a Shiba Inu dog and aims to create a decentralized ecosystem focusing on community and community-driven initiatives.
Note: Non-fungible tokens (NFTs). Although this type is not a cryptocurrency, it’s worth mentioning these tokens when it comes to crypto.
NFTs are digital assets (sometimes expensive) with unique identification codes that distinguish them from one another.
Unlike fungible tokens, which are identical to each other and can be traded or exchanged for goods and services, NFTs cannot be traded at equivalency. However, you can mint, buy and sell them at different marketplaces. This unique property of NFTs opens up a world of potential use cases.
Investing in cryptocurrencies
Investors have flocked to cryptocurrencies recently, attracted by their potential for high returns. However, crypto assets are notoriously volatile, and many experts warn that they may not suit everyone.
Before investing in cryptocurrencies, it’s essential to do research and understand the risks involved. Cryptocurrencies are subject to wild price swings and vulnerable to hacking and fraud (for example, the DAO attack).
Moreover, the cryptocurrency market is still relatively young and undeveloped, so it may be subject to greater regulation.
For all these reasons, investing in cryptocurrencies is not for the faint of heart. But it could be lucrative for those willing to take on the risks.
The future of cryptocurrencies
Cryptocurrencies have come a long way since their inception over a decade ago. What started as a novel idea has blossomed into a full-fledged industry, with hundreds of coins and tokens circulating.
Over the years, people have used cryptocurrencies from buying coffee to booking hotel rooms. And as the industry has grown, so has the infrastructure around it.
Today, there are dozens of exchanges where users can buy and sell cryptocurrencies and numerous merchants that accept them as payment.
Looking to the future, analysts estimate that the global cryptocurrency market will more than triple by 2030 and show a 12.5% annual growth rate from 2023 to 2030. So, with mainstream adoption becoming increasingly likely, it’s safe to say that cryptocurrencies are here to stay.
To sum up
So, there you have it — 10 different types of cryptocurrencies. While we can’t tell you which one will be the next big thing, we can help you understand its basics.
Doing your research before investing in any cryptocurrency is essential, as some are incredibly volatile and can fluctuate significantly in value.
The future of cryptocurrencies is still uncertain, but it seems likely that they will continue to grow in popularity and become more mainstream.