There would be hardly any person nowadays that wouldn’t have heard about the buzzing word–cryptocurrency. Cryptocurrency, meaning cryptographic currency, was first introduced in 2009 with Bitcoin. However, currently, there are thousands of cryptos available in the market.
While some of them are the building blocks of the new decentralised economy. For instance; Ethereum. A few cryptos are just made for fun like Potcoins (for Canabbies), Trumpoins, Putincoin, Whoppercoin, Garlicoin, etc. Based on usability, these cryptos can be divided into different categories, which we will take you through. So, let’s get started.
Understanding How to Differentiate Cryptocurrency
Before we get into the types of cryptocurrencies, let’s start this journey by clearing the basics. People often use the words coins and tokens interchangeably but are they the same? Let’s find out.
Coins: What Does Coin Mean in Crypto?
Coins usually have their own native blockchain. For instance, Bitcoin can be called a coin because it has its own blockchain, same goes with Ethereum. Coins are usually used as a store of value, pay for goods and services and a mode of payment.
Tokens: What Does Token Mean in Crypto?
Tokens in the crypto space are more like an asset than a medium of payment, i.e A crypto coin say Bitcoin is an asset in addition to being a payment mode, but NFTs (Non-fungible Tokens) are assets that can be used to represent online art. You can store or trade these tokens like coins in exchange for their value but can’t use them as a mode of payment.
Unlike crypto coins, tokens do not have their native blockchain network but are built on existing blockchains. For example, Polygon is a token that uses the Ethereum blockchain to facilitate cheaper and faster transactions.
The Difference Between Coins and Tokens
The major line of differences between crypto coins and tokens are as follows.
|Crypto Coins||Crypto Tokens|
|Blockchain Network||Crypto coins have their own blockchain network.||Crypto tokens are built on an existing blockchain network.|
|Purpose||The primary focus of coins is to provide a medium of exchange to receive goods and services. Either on its own blockchain or with some merchant.||The primary usage of tokens is to represent an asset like digital art or a photograph.|
|Examples||Some examples of coins are Bitcoin, Bitcoin Cash, Litecoin, etc.||Examples of tokens are Polygon, Tether, etc.|
|Method of Distribution||Coins are typically distributed via mining.||Tokens are mostly distributed via an Initial Coin Offering (ICO).|
|Difficulty Level||It is very challenging to build coins compared to tokens.||Because tokens are based on existing blockchain, they are easy to create.|
|Independence||Coins are based on their own native blockchain framework; they are independent to decide on their security, management, transaction process, etc.||As tokens are built on the existing blockchains, they depend on how the blockchain works.|
What Are the Different Types of Cryptocurrencies?
There are six major types of cryptocurrencies. Let’s get into them one by one.
1. Utility tokens
These tokens are built to serve specific needs and offer lucrative advantages in terms of early access to the offered goods and services. It is built to work within a particular project’s ecosystem.
Utility tokens are lately associated with ICOs. When a blockchain project is looking to raise capital, they do so by offering utility tokens for sale. Once the project or company succeeds, the value of utility tokens increases, which benefits the holders. One thing to note about these tokens is that they do not offer any ownership stake in the company.
2. Payment tokens
Payment tokens are widely used as a means of payment. Bitcoin is one of the popular payment tokens. However, payment tokens should not be misunderstood as being a fiat currency even if they are used as a mode of exchange for goods and services.
3. Exchange tokens
Just like a company issues utility tokens to raise capital for funding the project, exchange tokens act as a means to fund crypto exchanges. It helps them in expanding and strengthening their infrastructure. Investing in these tokens often give you voting rights, a concession of commission or transaction charges, etc. One of the examples of an exchange token is the BNB token issued by Binance Exchange. Users on this exchange can use BNB to pay fees or commissions.
4. Security tokens
Issued on the blockchain platform, security tokens are often linked with some type of stake in another asset or external company. Typically, these tokens are issued by businesses and governments. Holders of security tokens get the rights to receive dividends, interest payments, and more for investing in the company, just like stocks.
5. Non-fungible tokens
Non-fungible tokens or NFTs are known for representing one-of-a-kind assets in digital form. For example, an NFT could represent Monalisa’s painting in digital form. These tokens are unique and cannot exist in multiples, which helps them maintain their value. Cryptos like Bitcoin are traded in multiple quantities, while William Shatner’s personal memorabilia could be an NFT, which is just one across the globe.
Stablecoins are the type of cryptocurrencies that have their value derived from another currency or financial assets having lower volatility. They are often pegged with the US dollars or assets such as gold. Stablecoins maintain a reserve of underlying currencies or assets to maintain stability and provide an alternative means of payment for high volatility cryptocurrencies.
Top Cryptocurrencies by Market Cap
1. Bitcoin (BTC)
Bitcoin, founded in 2009, is the first and most popular cryptocurrency. It currently trades above $20,000. However, there was a time that it was worth more than $60,000 in Nov 2021. Bitcoin was created as a means of payment but is often used as a store of value because of its limited supply of 21M coins.
2. Ethereum (ETH)
Ethereum is based on the Ethereum blockchain network. It is a ticket for developers to use its decentralized platform in order to build decentralized apps using smart contracts. ETH was founded in 2013 and was launched in 2015. In terms of market cap and popularity, it holds second rank.
3. Tether (USDT)
Tether is a stablecoin pegged to the US dollar. It is also the largest stablecoin with a sizable market cap. It was launched in July 2014 under the name of Realcoin. Its name was changed to Tether in November 2014. Because its value is tied to USD, Tether almost always trades at $1.
4. USD Coin (USDC)
USD Coin is famous as the world’s digital dollar. It is also a stablecoin having its value pegged to the US dollar. USD Coin was launched in 2018 and is currently trading at $1, just like Tether.
5. Binance Coin (BNB)
Binance Coin is an example of a utility and exchange token created to offer discounted trading fees on the Binance exchange. It was launched via an ICO by the Binance exchange in 2017. Binance is the largest crypto exchange in the world.
6. Binance USD (BUSD)
Binance USD is a stablecoin launched in 2019. It is also a coin offered by the Binance exchange and has its value tied to the US dollar.
7. XRP (XRP)
XRP was launched as a payment method in 2012 by Ripple digital payment network. Ripple uses the XRP ledger as a consensus mechanism to offer secure transactions to its network of financial institutions. XRP finished a decade in the crypto market in June this year.
8. Cardano (ADA)
Cardano was launched in 2017 after two years of development by Charles Hoskinson, a co-founder of Ethereum. He states that ADA is way more advanced and secured compared to Ethereum. Cardano is based on Ouroboros, a proof of stake consensus mechanism to secure transactions on its blockchain ecosystem.
9. Solana (SOL)
While Solana was founded in the year 2017, the coin was launched in 2020. Solona platform is very useful for creating dApps. Like Ethereum, Solana also helps users to create smart contracts enabling them to build NFTs and other applications. It is also known as Ethereum Killer.
10. Dogecoin (DOGE)
Started as a parody of cryptos, Dogecoin gained popularity in 2019-20 when Tesla’s CEO Elon Musk tweeted that he supports DOGE. Dogecoin is the first ever coin to be known as Memecoin. DOGE, launched in 2013, is used as a payment method in many nations.
11. Polkadot (DOT)
Polkadot is based on its native blockchain. It enables interoperability between blockchains. This is also one of the types of cryptocurrencies that was founded by former CTO and co-founder of Ethereum, Gavin Wood.
12. Shiba Inu (SHIB)
The Shiba Inu token was launched in 2020. It is said to be an alternative to Dogecoin. This token has a fascinating history of being minted in a whopping number of 1 quadrillion. SHIB runs on the Ethereum blockchain and helps its community build apps, and plans to launch its own NFT platform in the future.
13. Dai (DAI)
Dai is a stablecoin pegged to the US dollar and aims to maintain its value equal to $1. It is based on the Ethereum blockchain. It was launched in 2017.
14. Polygon (MATIC)
According to its website, “Polygon is a decentralized Ethereum scaling platform that enables developers to build scalable user-friendly dApps with low transaction fees without ever sacrificing on security.” Polygon is an Indian crypto token launched in 2017.
15. Avalanche (AVAX)
Avalanche is considered to be one of the fastest platforms to create smart contracts from beginning to end. It has the highest number of validators and is said to be a competitor of Ethereum. AVAX is so fast that it completes around 6500 transactions per second.
Note: Market related numbers are taken as of August 2022.
Why Do We Have So Many Cryptocurrencies?
There are not only different types of cryptocurrencies but also a massive number of them. So it is obvious to think that why there are so many cryptos available in the market! Well, there is no single answer to this question but we do have some factors that could have contributed to it –
1. Blockchain and innovation
Cryptos are based on blockchain that offers developers plenty of opportunities to build their own cryptos for different functionality. This is also the reason that for making payments, we have payment tokens such as Bitcoin; for price stability, we have stablecoins; for raising funds for specific uses, we have utility tokens, etc.
2. Crypto gains are lucrative
Who doesn’t like making lucrative returns? If invested in 2017’s crypto market fall, your returns would have been more than double and triple at present. This has become the mindset of people for not only investing in cryptos but also creating more cryptos.
3. Crypto forking
Forking leads to more cryptos coming into existence. For example, Bitcoin’s forking led to the creation of Bitcoin Cash, Litecoin, Bitcoin Gold, etc. Further, Litecoin also led to Litecoin Cash. This chain continues to add more features and extra layers of security to cryptos; the outcome is more cryptos in the market.
4. The popularity of ICOs
Just like cryptos have gained immense popularity, ICOs have their own share of fame. With more ICOs, more tokens are issued, which increases the crypto count. There have been 2329 ICO launches in the cryptocurrency market as of 2020 in different industries, including banking, smart contracts, platforms, entertainment, and more.
Can You Invest in All Types of Crypto?
N numbers and types of cryptocurrencies are available in the market for you to invest in. However, the question is should you invest in them? If yes, what should you look for before investing?
Yes, cryptocurrencies are risky, but the risk depends on which crypto you invest in. It also depends on your research, knowledge of the crypto market, and the crypto you invest in. Investing in even the safest asset class without due diligence can prove risky. Thus, it is better to always do your homework, research well, talk to an expert, and start small if you are still not confident.
A thoroughly put crypto basket or Coin Sets are ideal investment options to enter the world of cryptocurrencies. Download Mudrex and check them out.
Utility tokens, security tokens, stablecoins, etc., are different types of cryptocurrencies we discussed in this article. They are created and classified based on their functionality. With crypto’s increased popularity and constant innovations in this field, we can say that it’s just the beginning of this era, and we are yet to witness the cryptocurrency market reach its highest point.
1. What are the top five types of cryptocurrencies?
The top five types of cryptocurrencies are: utility tokens, security tokens, stablecoin, payment tokens, and exchange tokens. Each of these cryptos serves different usability, i.e., payment tokens are used as a mode of payment, exchange tokens help a crypto exchange in raising funds for their operations or expansion, and so on.
2. Which cryptocurrency has the highest value?
Bitcoin has the highest value in terms of price and market cap in the crypto space. It is currently trading above $21,000 and has a market cap of $409,912,484,270 as of August 2022. After Bitcoin, Ethereum and Tether rank second and third, respectively.
3. Are Bitcoin and crypto the same?
Bitcoin is one of the cryptocurrencies, among several others, such as Ethereum, Tether, USD Coin, Dogecoin, etc. Bitcoin falls under payment tokens in terms of the type of cryptocurrency and serves as a means for peer-to-peer payments. It is also the first and the largest cryptocurrency in terms of market capitalization.
4. What are other types of cryptocurrencies other than Bitcoin?
Other cryptocurrencies besides Bitcoin include Ethereum, Tether, XRP, Litecoin, Dogecoin, Shiba Inu, Polygon, Binance coin, and more. We can divide these cryptos based on their usability. For example, Bitcoin is a payment token, while Tether is a stablecoin pegged to USD.