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6 Major Cryptocurrency Classifications Arranged by Utility

Did you realize that each cryptocurrency has a distinct set of uses? Others even involve more than one category!

Cryptocurrencies have gained prominence as digital assets that can be used, stored, and traded. These digital assets are distinct from more established financial goods like gold or stock. Cryptocurrencies are virtual currencies that rely on cryptography to protect their value and prevent fraud.

Although cryptocurrencies are a desirable alternative to traditional investments, they are also volatile. So, the search for the answer to the question “What are cryptocurrencies good for?” arises. Well, it depends on your expectations for your bitcoin’s utility

Store of value cryptocurrency

Any item or asset with future purchasing power and the ability to be quickly exchanged for something else is considered a store of value. In the cryptosphere, a few cryptocurrencies were developed with the main objective of acting as currency. They have developed over time and can be used as a store of value, just like gold or real estate. The two most significant cryptocurrencies in this group are Bitcoin and Litecoin.

Currently, Bitcoin is the most widely used cryptocurrency. People have become accustomed to buying it with the expectation that the price of Bitcoin will increase because it has been available for a very long period.

Bitcoin has proven that it can be leveraged in the long run to produce greater returns. By a factor of ten, it has outperformed the NASDAQ 100, with a rate of return of 230% annually on average over the past ten years. Additionally, Bitcoin has a limited number of 21 million tokens, suggesting that because of its rarity, there will always be a market for it.

By giving users a quicker option to make online purchases, Litecoin was created to complement Bitcoin. In contrast to Bitcoin, which is referred to as “digital gold,” Litecoin is frequently referred to as “digital silver.”

A hard fork of the Bitcoin blockchain produced Litecoin, which functions much like Bitcoin, including acting as a store of value. Due to its high demand and limited supply, Litecoin has seen price hikes over the years. It is a deflationary currency.

Protocol/exchange cryptocurrencies

Cryptocurrencies with a unique blockchain are referred to as protocol-level coins. These protocols guarantee security, enable access to the blockchain, and permit the operation of applications.

Some cryptocurrencies solely function as blockchain protocols, while others are exchanges that provide their tokens. Exchanges are online marketplaces where users can purchase or sell cryptocurrencies for fiat money like the US dollar or the euro. These protocol networks offer opportunities for staking with proof-of-stake (POS) methods to generate returns.

Originally known as Binance Coin, Build & Build (BNB) is an illustration of a protocol/exchange cryptocurrency. A cryptocurrency called BNB is built on the BNB Chain blockchain. The blockchain token that powers transactions on the BNB Chain is called BNB. BNB coins are a requirement for all blockchain transactions, making them an essential part of all activity on the BNB Chain.

Another protocol/exchange cryptocurrency with a native cryptocurrency and its own private blockchain is Cronos (CRO). Okex, Reef Chain, and Polkadot are some further examples in this area (OKB).

Gaming/NFT cryptocurrencies

The two most widely used cryptocurrencies now are those related to gaming and non-fungible tokens (NFTs). They are designed to be used in web applications and video games. A gaming NFT token, for instance, might stand in for ownership of virtual objects or digital resources used in gaming software.

These digital resources are unique and cannot be copied or replicated. Ethereum is the most popular platform for minting NFTs, although other blockchains have been used.

One well-known example of a gaming/NFT token is Axie Infinity (AXS) — an NFT-based game featuring a virtual economy. Axies are virtual animals that users can buy, sell, and trade. The fact that AXS may be exchanged on well-known exchanges also makes it unique.

Other instances of gaming/NFT tokens include Enjin (ENJ), Chiliz (CHZ), Gala (GALA), The Sandbox (SAND), and Dencentraland (MANA).

Smart contract cryptocurrencies

Contracts known as “smart contracts” can be used to carry out transactions and execute themselves. They operate directly on the blockchain as if they were software, removing the need for a third party to process the contract. In a sense, smart contracts make it possible to automate the transparent, verifiable implementation of agreements between two or more parties.

A smart contract coin, Maker (MKR) is a representation of the decentralized software platform MakerDAO. Users can create and manage the DAI stablecoin using Maker (MKR), the MakerDAO governance token. Voting rights in the creation of the Maker Protocol are contingent upon having MKR coins.

In the world of smart contracts, Polymath (POLY) is a cryptocurrency that is causing a stir. Verified investors can participate in Securities Token Offerings (STOs) based on the Polymath ST-20 standard using the platform offered by Polymath (POLY).

Miota (IOTA) and Stellar (XLM) are two further coins in this category. Through governance protocols, automated escrow systems, and markets that make use of smart contracts, these tokens can be utilized to facilitate the trading of goods or services.

Privacy cryptocurrencies

The varieties of privacy-focused cryptocurrencies are numerous. Privacy coins enable discrete and anonymous transactions. No personal information is required to use or exchange these coins/tokens.

Monero (XMR), a decentralized cryptocurrency, leverages methods that improve privacy and conceal transactions to achieve anonymity and fungibility. The transactions, wallet balances, and trading activities of Monero users are therefore rather complicated to comprehend. But, this coin offers superior anonymity.

Zcash is a different cryptocurrency that emphasizes anonymity (ZEC). To give its customers more privacy, it employs high-level cryptography. Zcash is built on the Bitcoin code and is similar to it in several ways, including the fixed number of 21 million tokens.

Verge, Secret (SCRT), Dash (DASH), Decred (DCR), and Dusk Network (DUSK) are some of the cryptocurrencies that place a strong emphasis on privacy (XVG).

Fintech cryptocurrencies

The final subcategory focuses on cryptocurrencies that employ blockchain technology to offer new financial services and applications.

Ethereum, the second-largest cryptocurrency by market value, is at the top of the list of cryptocurrencies utilized in Fintech. Its blockchain, which has also been used to create currency, is utilized to power a range of decentralized applications (Ether).

Solana is a different blockchain with both financial and technological elements. It is a high-performance blockchain and contains a native currency called SOL. Thanks to its scalable blockchain architecture, it supports the creation of cryptocurrency apps by developers worldwide.

In the FinTech area, more coins include Polygon (MATIC), Algorand (ALGO), Fantom (FTM), Avalanche (AVAX), and Cosmos (ATOM)

The Categorization of Cryptocurrencies Is Still Shifting

Although there are many different ways to classify cryptocurrencies, it’s important to remember that some may fit into more than one category type. Nevertheless, as blockchain technology, cryptocurrencies, and novel use cases advance, more cryptocurrency classifications will show up.

For more information, join our Discord community: https://discord.gg/GM3U44e6PG

Disclaimer: The information herein is for educational purposes only and should not be considered financial, investment, or trading advice. Please conduct your own research and due diligence before making investment decisions. You understand that you are using the Information provided at your own risk.

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Rikkei Finance

Rikkei Finance

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Rikkei Finance is a Web3 platform, encompassing a DeFi lending protocol and an NFT Marketplace; with a focus on NFT rentals and NFT based lending and borrowing.