Types of Cryptocurrencies: A Comprehensive Overview

From the inception of Bitcoin in the crypto industry, there has been an emergence of new types of cryptocurrencies. A wider variety is now in the market, from stablecoins to non-fungible tokens to dog memes. However, they are always under a common use of a distributed ledger technology known as the blockchain.

Apart from Bitcoin and other altcoins, there is a broader categorization of cryptocurrencies than we are used to. We look at these types in the following overview.

How Many Cryptocurrencies are There?

Based on data from CoinMarketCap, there are 22,721 cryptocurrencies with a total market capitalization of $1.06 Trillion. This is quite a growing number considering that the launch of Bitcoin was just in 2009. 

After Bitcoin, the first alternatives came into play around 2011, with the likes of Litecoin (LTC) and Namecoin (NMC) appearing. It was not until Ethereum (ETH) launched that there was a massive rise in popularity for altcoins.

Over the years, crypto usage continues to grow, with them being a standpoint as investment vehicles. Additionally, many buyers consider them to be a store of value.

The Difference Between Crypto Coins and Crypto Tokens

In Blockchain, we interchange the terms token and cryptocurrency, as they are both digital assets on blockchains. The primary difference between the two is that crypto coins are the native assets of a blockchain like BTC, RBTC, or ETH. On the other hand, tokens are built on an existing blockchain using smart contracts. Their common name is the EIP-20 tokens.

Additionally, one can mine a crypto coin through proof of work (PoW) or earn through proof of stake (PoS). However, a token represents an asset or offers holders certain platform-specific features. Tokens represent certain functionalities like utility, security, and governance. 

Examples of such tokens include Cronos (CRO) and Uniswap (UNI). Unlike coins, it is easy for tokens to exist as part of the ecosystem of another network. As such, they do not need to have their blockchain.

Different Types of Cryptocurrencies

Altcoins

An altcoin represents any other cryptocurrency other than Bitcoin (BTC). Most people now are developing the thought that it refers to any other cryptocurrency other than Ethereum and Bitcoin since most of them are forked from one of the two. 

Some altcoins use different consensus mechanisms to validate transactions and open new blocks. They try distinguishing themselves from Ethereum and Bitcoin by adding new capabilities or purposes.

The release and design of altcoins are by developers with different visions or uses for their tokens or crypto.

Altcoins are of different categories. Their categorization can be based on what they are intended to be used for.

They include:

• Payment tokens
• Security tokens
• Utility tokens
• Governance tokens

The largest altcoin today is Ethereum, with a market cap of $201 billion. Other significant altcoins include Solana (SOL) and Cardano (ADA). SOL and ADA are considered to be Ethereum’s major competitors.

Altcoins tend to have different purposes beyond just serving as a digital currency. For instance, Ethereum comes into play as a computing network that lets users run decentralized applications on the blockchain and host smart contracts.

Stablecoins

A stablecoin mainly refers to a crypto whose value is pegged to another asset’s price. If functioning correctly, a stablecoin pegged to the US dollar should always be valued at $1. Just as the name suggests, their value always remains stable. As such, their value is somewhat predictable because it remains the same almost always.

Therefore, we have dollar and Euro-stabilized or backed stable coins, gold and other precious metals, oil, and commodity-backed tokens. There are two types of stablecoins:

• Collateralized stablecoins- They maintain a collateral pool to support the coin’s value. As such, an equal amount of collateral is taken out when someone sells their tokens. A typical example is the Tether USD (USDT), pegged to the dollar.
• Algorithmic stablecoins- They use algorithms to control their supply, which maintains their price peg.

Meme Coins

Just as the word comes into play, they are the comedians of the crypto world. They mainly gain popularity and traction through memes and social media. It can also refer to coins that blow up on social media. The original meme coin that started it all is Dogecoin (DOGE). It began as a joke and later became a verifiable cult asset as users flocked to it.

There has been the emergence of over 200 meme coins. While taking part in such assets and conceptualizing them is fun, meme coins rise quickly and can fall rapidly as they grow.

DeFi Coins

A DeFi coin operates similarly to a digital version of a fiat currency, as it facilitates the transfer of value during financial transactions. DeFI coins are built on and often named after their unique, native blockchain networks. Maker, Compound, Uniswap, Aave, Chainlink, and Ankr are among the most popular DeFi coins. 

DeFi on other currencies is made possible through wrapped tokens. For instance, DeFi on Bitcoin happens through wrapped Bitcoin (WBTC). However, one WBTC is equivalent to one BTC.

Metaverse Coins

Crypto has its role in shaping the metaverse. As such, certain coins have developed that play a role in facilitating commerce and exchange within the metaverse. They are known as metaverse coins with a market capitalization of over $500 million. They include ApeCoin (APE), Internet Computer (ICP), Theta Network (THETA), Axie Infinity (AXS), and The Sandbox (SAND).

Final Thoughts

The wider variety of types of cryptocurrencies gives users a wider variety of options to maximize their profits. However, while crypto-assets represent a significant technological, financial, economic, and computer science innovation, investing in them should be considered risky.

You should only invest capital you are willing to lose and conduct your research.