Different Categories of Cryptocurrencies
Although Bitcoin was the first cryptocurrency in operation for the general public, many different kinds of cryptocurrencies exist. Depending on its formulation or code design, application or use case, and other criteria, there are at least four different sorts of cryptocurrencies that we can distinguish.
Despite being used to describe all varieties of cryptocurrencies or digital currencies, the term “cryptocurrencies” is frequently confused with “coins.”
Coins may be distinguished from altcoins, though. For example, in addition to Bitcoin, all other cryptocurrencies that are viewed as alternatives to Bitcoin are referred to as altcoins.
Coins: Because coins are built on their blockchain and serve as both the native token and the gas payment token, they are a unique form of altcoins. Bitcoin on the Bitcoin blockchain and Ether, or ETH, on the Ethereum blockchain are two good examples.
Altcoins: All other coins apart from bitcoin are known as altcoins or alternative coins. Most cryptocurrencies, except for Ethereum, were forked from Bitcoin. However, several cryptocurrencies, such as NEO, Ripple, and Ethereum, have their blockchains. Some do not.
Tokens: In a blockchain, tokens serve as digital representations of specific assets or utilities. All tokens can be referred to as altcoins; however, they are called “tokens” instead of “coins” because they do not have a native blockchain.
Categories of Cryptocurrencies
Stablecoins
Cryptocurrencies known as stablecoins are backed by a physical good like gold or are tied to a fiat currency like the US dollar to preserve price stability. USDC, Dai, and USDT are among the examples. As they combat the extreme volatility of other cryptocurrencies, stablecoins are becoming increasingly popular as liquidity vehicles in the digital world.
A stablecoin’s value may be linked to a basket of reference assets in addition to being directly tethered to an asset as a means of maintaining price stability. Commodities, fiat money, government securities, digital assets, or any mix of these can be included in the reference asset basket.
Examples are: USDT, USDC, and DAI
Utility Tokens
A cryptocurrency token with a specific use case within a particular ecosystem is called a utility token. These tokens enable users to carry out specified actions on a particular network.
An ecosystem’s utility token is special. For instance, the FIL token on Filecoin may only be used to pay for storage. Other than speculating on its worth, FIL has no use. Any utility token may be stated to be the same way.
Unlike cryptocurrencies, utility tokens cannot be mined. Instead, they are often pre-mined, meaning they are generated all at once and distributed in a way decided upon by the project team.
Examples of utility tokens include Filecoin (FIL), Basic Attention Token (BAT), and Polygon (MATIC).
Governance Tokens
A specific kind of utility token known as a governance token is used to secure voting rights (the opportunity to vote in blockchain-wide elections). Users may vote on choices that affect blockchain ecosystems using governance tokens, as the name implies.
Examples of governance tokens: Maker (MKR), Apecoin (APE), and Aave (AAVE).
Meme Coins
Meme coins, as their name indicates, are parodies or humorous interpretations of other well-known cryptocurrencies. However, they usually become well-known quickly and are frequently promoted online by famous influencers or investors looking to make quick money.
Examples of meme coins are Dogecoin (DOGE), Shiba Inu (SHIB), and MonaCoin (MONA).
Security Tokens
Tokenized assets provided on stock exchanges include security tokens. Tokenization is the conversion of an asset’s value into a token, which is subsequently distributed to investors. Any asset, including stocks and real estate, may be tokenized. But, of course, the asset must be kept and secured to operate. If not, the tokens wouldn’t have any value because they wouldn’t stand for anything.
Examples of security tokens are Swarm (BZZ) and Polymath (POLY).
Payment Tokens
Payment tokens are used to transact directly between buyers and sellers of products and services on digital marketplaces, as opposed to via an intermediary, as is common in traditional banking and finance. Of course, the bulk of cryptocurrencies and tokens fit within this category, whether they are security or utility tokens. But not all utility tokens may also function as payment tokens.
Examples of payment tokens are Litecoin (LTC) and Dash (DASH).
