There is hardly a person who has never heard of cryptocurrencies. Cryptocurrencies first appeared in 2009 under the name Bitcoin. However, there are thousands of cryptocurrencies on the market today.
While some of them are the building blocks of a new decentralized economy. For example, ethereum. Some cryptocurrency systems were created simply for fun, such as Potcoin (for Canadians), Trumpcoin, Putincoin, Vopcoin, Garliccoin, etc. Depending on availability, these cryptocurrency systems can be divided into different categories, which we present. So, let’s start.
Understanding How to Differentiate Cryptocurrency
Before discussing the types of cryptocurrency, let’s begin this journey by reviewing the basics. The terms coins and tokens are often used interchangeably, but are they really the same thing? Let’s take a look.
Coins: What Does Coin Mean in Crypto?
Coins usually have their own intrinsic blockchain. Bitcoin, for example, can be called a cryptocurrency because it has its own blockchain, and the same is true for Ether. Coins are often used as a means of storing value, to pay for goods and services, and as a means of payment.
Tokens: What Does Token Mean in Crypto?
Tokens in the cryptocurrency space are an asset and not a means of payment, i.e., cryptocurrencies, like Bitcoin, are both an asset and a means of payment, but NFTs (Non-fungible Tokens) are an asset and can be used to represent art online. You can store or exchange these tokens as coins for their value, but you cannot use them as a means of payment.
Unlike cryptocurrencies, tokens do not have their own blockchain network, but rely on existing blockchains. Polygon, for example, is a token that uses Ethereum’s blockchain to enable cheaper and faster transactions.
The Difference Between Coins and Tokens
The major line of differences between crypto coins and tokens are as follows.
|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 credentials are designed to meet specific needs and to provide profitable benefits for the goods and services offered in a timely manner DeepL. They are created to work within the ecosystem of a particular project.
Utility tokens have recently been associated with ICOs. When a blockchain project wants to raise funds, it is sold by offering utility tokens. Once the project or company is successful, the value of the utility tokens increases to benefit the holder. One thing to note about these tokens is that they do not offer a stake in the company.
2. Payment tokens
Payment tokens are widely used as a means of payment. Bitcoin is one of the most widely used payment tokens. However, payment tokens should not be misunderstood as legal tender, even though they are used as a means of exchanging goods and services.
3. Exchange tokens
Just as companies issue utility tokens to raise funds to finance their projects, exchange tokens are used to finance cryptocurrency exchanges. This helps them expand and strengthen their infrastructure. Investment in these tokens often confers voting rights, grants fees or transaction charges, etc. An example of an exchange token is the BNB token issued by the Binance exchange. Users of this exchange can use BNB to pay fees or commissions.
4. Security tokens
Security tokens issued on a blockchain platform are usually associated with another business or some type of stake in an outside company. Typically, these tokens are issued by companies and governments. Holders of security tokens are entitled to dividends, interest, etc. for their investment in the company, just like stocks.
5. Non-fungible tokens
Non-fungible tokens or NFTs are known to represent unique assets in digital form. For example, an NFT might represent a painting of the Mona Lisa in digital form. These tokens are unique and cannot exist in multiple copies, which helps them maintain their value. Cryptocurrencies such as Bitcoin are widely traded, and William Shatner’s personal token could be an NFT, the only one of its kind in the world.
Stable coins are cryptocurrencies that derive their value from another currency or financial asset and are less volatile. They are usually pegged to an asset such as the U.S. dollar or gold. Stable coins maintain reserves of the base currency or asset to maintain stability and provide an alternative means of payment to highly volatile cryptocurrencies.
Top Cryptocurrencies by Market Cap
1. Bitcoin (BTC)
Founded in 2009, Bitcoin is the first and most popular cryptocurrency. It is currently traded at a price above $20,000. However, there was a time when its value exceeded $60,000 in November 2021. Bitcoin was created as a means of payment, but it is often used as a store of value due to its limited supply of 21 million coins.
2. Ethereum (ETH)
Ether is based on the Ether blockchain network. It is the ticket for developers to use its decentralized platform to create decentralized applications using smart tokens. Founded in 2013, ETH was launched in 2015. It ranks second in terms of market capitalization and popularity.
3. Tether (USDT)
Tether is a stablecoin pegged to the U.S. dollar. It is also the largest stablecoin, with a significant market capitalization. It was launched in July 2014 as Realcoin. in November 2014, the name was changed to Tether. because of its value pegged to the U.S. dollar, Tether almost always trades at $1.
4. USD Coin (USDC)
The U.S. currency is known as the world’s digital dollar. It is also a stable currency whose value is pegged to the U.S. dollar. Dollarcoin was launched in 2018 and currently trades at $1, just like Tether.
5. Binance Coin (BNB)
Binance Coin is an example of a cryptocurrency and exchange coin created to offer lower transaction fees on the Binance exchange. It was launched in 2017 through an ICO on the Binance exchange, which is the largest cryptocurrency 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 is a payment method introduced by Ripple, a digital payment network, in 2012. Ripple uses the XRP ledger as a consensus mechanism to provide secure transactions to its network of financial institutions. In June this year, XRP turned a decade old in the cryptocurrency market.
8. Cardano (ADA)
Cardano was launched in 2017 after two years of development by Ether co-founder Charles Hoskinson. Cardano is based on Ouroboros, a proof-of-stake consensus mechanism to protect transactions in its blockchain ecosystem.
9. Solana (SOL)
Although Solana was founded in 2017, the coin was released in 2020. the Solona platform is very useful for creating dApps. Like Ether, Solana helps users create smart contracts that they can use to build NFTs and other applications. It is also known as the “Ethereum killer.”
10. Dogecoin (DOGE)
Created as a parody of cryptocurrencies, dogecoin gained popularity in 2019-20 when Tesla CEO Elon Musk tweeted that he supported DOGE. dogecoin was the first cryptocurrency to be called Memecoin. launched in 2013, DOGE is used as a means of payment in many countries.
11. Polkadot (DOT)
Polkadot is based on the indigenous blockchain. It makes blockchains interoperable with each other. It is also one of the types of cryptocurrency created by former CTO and Ether co-founder Gavin Wood.
12. Shiba Inu (SHIB)
The Shiba Inu token was released in 2020. It is said to be a replacement for the Dogecoin. This token has a fascinating track record, having been minted up to 1 trillion. SHIB runs on the Ethereum blockchain, helping its community build applications, 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 scalable Ethereum platform that enables developers to create scalable and easy-to-use dApps at low transaction costs without ever compromising security.” Polygon is an Indian cryptocurrency launched in 2017.
15. Avalanche (AVAX)
Avalanche is considered one of the fastest platforms for creating smart contracts from start to finish. It has the largest number of verifiers and is said to be a competitor to Ether. avaX is very fast, completing about 6,500 transactions per second.
Why Do We Have So Many Cryptocurrencies?
There are not only different types of cryptocurrencies, but also a huge number of them. Therefore, it is obvious to think: why are there so many cryptocurrencies in the market!
1. Blockchain and innovation
Cryptographic systems are based on the blockchain, which provides many opportunities for developers to create their own cryptographic systems for different functions. Thus, for payments we have payment tokens, such as Bitcoin; for price stability we have stable coins; for fundraising for specific purposes we have utility tokens, and so on.
2. Crypto gains are lucrative
Who doesn’t love creating income opportunities? If you had invested during the cryptocurrency market crash of 2017, your returns would have more than doubled and would have tripled today. It has become the mindset not only to invest in cryptocurrencies, but to create more of them.
3. Crypto forking
Forks have led to the existence of multiple currencies. For example, the bifurcation of Bitcoin led to the creation of Bitcoin Cash, Litecoin, Bitcoin Gold, and so on. In addition, Litecoin led to Litecoin Cash. this chain continues to add more features and layers of security to cryptocurrencies; the result is more cryptocurrencies in the market.
4. The popularity of ICOs
Just as cryptocurrencies have gained immense popularity, ICOs have also had their share of fame. With more ICOs, more tokens are issued, which increases the number of cryptocurrency players. Since 2020, the cryptocurrency market has seen the launch of 2,329 ICO projects in various sectors, including banking, smart contracts, platforms, entertainment and others.
Can You Invest in All Types of Crypto?
There are a number and type of cryptocurrencies available in the market to invest in. However, the question is whether one should invest in them or not. If yes, what should one pay attention to before investing?
Yes, cryptocurrencies are risky, but the risk depends on the cryptocurrency you invest in. It also depends on your research, knowledge of the cryptocurrency market and the cryptocurrency you are investing in. Even in the safest asset classes, investing without due diligence can be risky. Therefore, the best thing to do is to do your homework, do proper research, talk to experts and, if you are still unsure, start small.
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Utility tokens, security tokens, stable coins, etc. are the different types of cryptocurrencies we discuss in this article. They are created and classified according to their function. With the growing popularity of cryptocurrencies and constant innovation in the industry, we can say that this is only the beginning of the era and we have yet to see the cryptocurrency market reach its highest point.
1. What are the top five types of cryptocurrencies?
The first five types of cryptocurrencies are: utility tokens, security tokens, stable coins, payment tokens, and exchange tokens. Each of these cryptocurrencies has a different purpose: payment tokens are used as a form of payment, exchange tokens help cryptocurrencies raise funds for their operations or expansion, and so on.
2. Which cryptocurrency has the highest value?
Bitcoin has the highest value in the cryptocurrency space in terms of price and market capitalization. It is currently listed above $21,000 and has a market value 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, along with numerous other cryptocurrencies such as Ether, Tether, Dollarcoin, Dogecoin, etc. In terms of the type of cryptocurrency, Bitcoin is a payment token and acts as a peer-to-peer payment medium. It is also the first and largest cryptocurrency to be capitalized in the market.
4. What are other types of cryptocurrencies other than Bitcoin?
In addition to Bitcoin, other cryptocurrencies include Ether, Tether, XRP, Litecoin, Dogecoin, Shiba Inu, Polygon, Binance, and others. We can distinguish these cryptocurrencies based on their utility. For example, Bitcoin is a payment token, while Tether is a fixed currency pegged to the U.S. dollar.