Currently, more than 18,000 types of cryptocurrencies are in circulation in the market. The underlying blockchain technology helps generate different cryptocurrencies for diverse functionalities. In fact, cryptocurrencies are broadly classified based on three parameters—the way they are made, the way they are extracted, and their use case (exchange, Defi or NFT).
Talking about types of cryptocurrencies, a non-fungible token (NFT) is a unique digital asset that showcases possession of real-world items such as art, video clips, and music. Although they are not considered currencies, NFTs use the same blockchain technology that powers cryptocurrencies. Interestingly, you can make your own NFT too.
It would be interesting to understand what Defi (Decentralized Finance) is. Contemplate this—Bitcoin embodies the value (like a fiat currency) that works on its blockchain. On the other hand, Defi allows you to lend, borrow, and trade in cryptocurrencies. To use an analogy, DeFis are similar to financial institutions such as banks.
Types of cryptocurrencies Explained?
Cryptocurrencies are further categorized as coins and tokens. Coins have their blockchain. On the other hand, tokens do not have their blockchain and are made on an existing one. For example, Ethereum is a blockchain, and ether is its inborn coin. However, a token such as BAT works on this blockchain.
Coins serve as mediums of exchange, while tokens are assets. Tokens can be traded for their worth and even risked if you need to earn interest.
Some examples of tokens are Chainlink, Uniswap, or Polygon. Bitcoin is, of course, the world’s most famous crypto token. You can learn more about it here.
Blockchain enables the transactions of crypto coins, while tokens hinge on keen contracts for trade. A token represents what a person retains, while a coin symbolizes their competence to own.
A coin as an element of currency runs independently on its blockchain. You can use it the same way you would use real money to pay for services. El Salvador is the first country to adopt Bitcoin as a legal tender. Some of the popular categories of cryptocurrencies are discussed below.
“Altcoin” denotes any sort of cryptocurrency other than bitcoin. The term “altcoin” is short for “other coins.” There are thousands of altcoins, but Ethereum is the most popular altcoin. Of the entire cryptocurrency universe, Bitcoin makes up close to half of the total crypto market cap, while Ethereum comprises nearly a quarter. Altcoins hold the remaining market share.
Some of the popular altcoins are:
- USD Coin
Altcoins are extremely volatile assets. Gyrations in the cryptocurrency market are unpredictable and can make or mar the fortunes of investors. The wide acceptance of altcoins has been attributed to the fear of missing out (FOMO) and the inclination to be defended against. First-time investors would do well to tread carefully, as altcoins are a new asset class.
To learn more about altcoins, read this.
Essentially, stablecoins are considered a relatively stable cryptocurrency group and hold a better potential to be similar to daily-use currencies. Stablecoins are based on a fiat currency, such as the US dollar.
Beginners usually utilize them to evade trading fees. Some crypto exchanges don’t charge fees for exchanging US dollars for stablecoins. There are several types of stablecoins, and not all are created equal. Tether (USDT), introduced in 2014, is recognized to be the primary one and the largest stablecoin. Another popular stablecoin is USD Coin, which was launched in 2018 by Circle. USD Coin is pegged to the US dollar. Stablecoins such as TerraUSA, Dai, and Binance USD are also popular, but they have smaller market caps and diverse reserve breakdowns.
Wikipedia refers to memecoin as a cryptocurrency that is initiated from an Internet meme or has some other hilarious characteristic. Dogecoin (DOGE) and Shiba Inu (SHIB) are among the most popular varieties. They are extremely unstable as compared to mainstream cryptocurrencies such as Bitcoin (BTC) and Ether (ETH), as memecoins are community-driven tokens.
Usually, their value is influenced by social media and online community opinions. Elon Musk, through his tweets, has significantly swayed the value of meme coins. This frequently creates a lot of excitement but also FOMO and monetary risk. While it’s a fact that some investors have become rich with meme coins, many have also lost money due to market volatility. Another distinctive feature of meme coins is that they regularly have a massive supply. For example, Shiba Inu (SHIB) has an overall stock of 1 quadrillion tokens, while DOGE has no extreme supply and has over 100 billion tokens inflow currently.
You can learn more about memecoins here.
The utility token is a crypto token that helps some use cases within a specific ecosystem. These tokens let the users accomplish some action on a convinced network. A utility token is unique to its ecosystem. Basic Attention Token (BAT) is one such token. Brave’s BAT can only be used to tip content creators through the Brave browser or through other applications that have integrated BAT wallets, such as Twitter.