Cryptocurrencies, while often built on blockchain technology, exhibit significant variations.
These digital assets can be broadly categorized as coins or tokens, or more specifically as Bitcoin and other alternative cryptocurrencies (altcoins).
For the sake of clarity, this guide outlines 5 types of crypto currency.
Although many cryptocurrencies utilize a shared blockchain foundation, they are far from uniform.
Coins and Altcoins
Cryptocurrencies fall into two main categories: coins and tokens. Coins, such as Bitcoin and Ethereum’s Ether, operate on their independent blockchains.
Notably, Bitcoin has a capped supply of 21 million, distinguishing it from others like Dogecoin, which has an unlimited supply.
All cryptocurrencies other than Bitcoin are collectively known as “altcoins,” and their characteristics can vary significantly, though some bear a resemblance to Bitcoin.
In contrast, tokens are digital assets that leverage the infrastructure of an existing blockchain, such as Ethereum.
Examples of tokens hosted on the Ethereum blockchain include Tether, Chainlink, Uniswap, and Polygon.
Unlike coins, which possess their native blockchains, tokens are non-native assets.
What are the 5 types of crypto currency?
Cryptocurrencies can be classified in various ways.
A basic categorization is into coins and tokens, or Bitcoin and altcoins.
For this guide, however, we will explore 5 types of crypto currency:
- Bitcoin (and related forks)
- Altcoins
- Stablecoins
- Tokens
1. Bitcoin (and forks)
Bitcoin, the pioneer cryptocurrency, launched in 2009 by Satoshi Nakamoto, operates independently of banks and governments, ensuring secure and transparent transactions through blockchain technology.
Often considered “digital gold,” it’s valued as a hedge against traditional finance.
However, Bitcoin’s evolution hasn’t been smooth. Internal disputes led to Bitcoin forks, essentially modified versions.
These forks come in two types: soft forks, which are minor, widely accepted changes, and hard forks, which spawn entirely new cryptocurrencies.
Hard forks have resulted in coins like Bitcoin Cash (BCH), focused on faster and cheaper transactions, and Bitcoin SV (BSV), which aimed to adhere more closely to Bitcoin’s original design.
Read next: What Is Bitcoin?
2. Altcoins
Beyond Bitcoin, cryptocurrencies are commonly termed “altcoins.” Notable examples include:
- Ethereum (ETH): Introduced in 2015 by Vitalik Buterin, Ethereum serves as a platform for decentralised applications (DApps) and smart contracts, which are automated agreements.
- Litecoin (LTC): Developed by Charlie Lee in 2011, Litecoin, often considered Bitcoin’s counterpart, facilitates faster and more affordable transactions.
- Ripple (XRP): Since 2012, Ripple has specialized in global money transfers, connecting financial institutions for rapid, low-cost international payments.
- Cardano (ADA): Launched in 2017, Cardano prioritizes a secure and efficient developer platform, with a strong focus on research and testing.
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3. Stablecoins
Stablecoins, digital tokens designed to mirror the value of stable assets like the US dollar, bring stability to the often turbulent cryptocurrency market.
They facilitate trading, international transfers, and secure value storage by minimizing price fluctuations.
Here are some well-known stablecoins:
Tether (USDT): Supported by reserves of traditional currencies.
USD Coin (USDC): Recognised for regulatory adherence and transparency.
DAI: A decentralized option using assets within the Decentralized Finance (DeFi) sector as collateral.
While stablecoins function similarly to traditional currencies in daily use, they are legally classified and taxed as cryptocurrencies.
Read next: What are StableCoins – USDT & USDC, and why are they Important to Crypto Traders
4. Tokens
Digital tokens are assets developed using existing blockchain technology like Ethereum, Binance Smart Chain, and Solana.
While cryptocurrencies such as Bitcoin and Ether operate on their dedicated blockchains, tokens utilize the existing framework of another blockchain and are generated using smart contracts.
Tokens serve diverse purposes and can be categorized by their function. Below is an explanation of primary token types and their uses.
Utility Tokens
These tokens are designed to provide access to specific products or services within a blockchain-based ecosystem.
They do not represent ownership or investment in the project but instead function like access keys.
Use Case: Pay for services, earn rewards, or interact with dApps.
Example:
Basic Attention Token (BAT) – Used to reward users and content creators for engaging with ads on the Brave browser.
Chainlink (LINK) – Used to pay data providers who feed real-world data into smart contracts.
Security Tokens
Security tokens are digital representations of ownership in a real-world asset, such as shares in a company, real estate, or debt instruments.
They are often compared to traditional securities but are traded on blockchain platforms.
Use Case: Investment, profit-sharing, dividends, or equity ownership.
Example: tZERO – A regulated security token trading platform offering equity-based tokens.
SPiCE VC – Tokenized venture capital fund allowing fractional ownership.
Many security tokens fall into regulatory grey areas, and depending on jurisdiction, may be subject to securities laws. Always conduct due diligence.
Governance Tokens
These tokens give holders the right to participate in the governance of a blockchain project.
This includes voting on upgrades, fee structures, allocation of treasury funds, and other critical decisions.
Use Case: Community-led project management.
Example:
Uniswap (UNI) – Holders vote on protocol upgrades and governance proposals.
Compound (COMP) – Enables community members to influence key decisions about the lending protocol.
Stable Tokens (Stablecoins)
While technically a subtype of token, stablecoins deserve a mention due to their unique role in maintaining price stability by pegging their value to fiat currencies like USD, EUR, or commodities.
Use Case: Payments, remittances, stable store of value during market volatility.
Example:
USDT (Tether) and USDC (USD Coin) – Pegged to the US Dollar.
DAI – A decentralized stablecoin backed by crypto collateral.
NFTs (Non-Fungible Tokens)
NFTs are unique tokens that represent ownership of digital or physical assets like art, music, collectibles, virtual real estate, and more.
Unlike fungible tokens (like ETH or USDT), each NFT has a unique identifier.
Use Case: Digital art, gaming assets, digital identity, certificates.
Example:
Bored Ape Yacht Club (BAYC) – Digital art collectibles.
Decentraland (MANA) – NFTs used to represent virtual land and assets in the metaverse.
Payment Tokens
These tokens are intended to function purely as digital currency within or across specific blockchain ecosystems. They are used for transferring value and making payments.
Use Case: Peer-to-peer transfers, e-commerce payments.
Example:
Nano (XNO) – Designed for fast, feeless digital payments.
Bitcoin Cash (BCH) – A fork of Bitcoin aimed at faster and cheaper transactions.
Tokens power the functionality of decentralized ecosystems.
From accessing services and participating in governance, to representing real-world assets or making payments, each token type plays a distinct role in the blockchain economy.
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5. Memecoins
Born from viral internet memes, memecoins began as jokes but surged in popularity. Key examples include:
Dogecoin (DOGE): Originating in 2013 from the “Doge” meme, this initially humorous coin surprisingly gained traction, notably with celebrity endorsements like Elon Musk.
Shiba Inu (SHIB): Inspired by Dogecoin and launched in 2020, Shiba Inu swiftly rose to prominence as the “Dogecoin killer.”
Pepe Coin (PEPE): Emerging in 2023, this cryptocurrency draws from the “Pepe the Frog” meme, quickly attracting the crypto community with its humorous approach.
How many cryptocurrencies are there?
There are an estimated 20,000 cryptocurrencies in existence, though many are either inactive or no longer used.
Currently, CoinMarketCap identifies 10,000 as “active,” but a considerable number of these face such low liquidity that trading is nearly impossible.
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Why are there so many cryptocurrencies?
Cryptocurrency diversity stems from the open-source nature of blockchain technology, which allows anyone to adapt the original code for new creations.
This accessibility has spurred developers to build a wide-ranging collection of digital currencies, each tailored to address distinct challenges or introduce innovative functionalities.
Consequently, while some cryptocurrencies, such as Bitcoin, have achieved widespread recognition and substantial value, others remain focused on specific areas or are exploratory.
Coins vs. tokens
Cryptocurrencies come in two primary forms: coins and tokens, each with distinct roles.
Coins, exemplified by Bitcoin and Ethereum, function on their dedicated blockchains.
They serve as a form of digital currency, facilitating the storage of value and peer-to-peer transactions, much like traditional money.
In contrast, tokens are built upon established blockchains like Ethereum.
Their utility extends beyond currency; they can signify ownership, grant access to services, represent digital assets, and empower governance rights.
Five Use Cases of Cryptocurrencies
Bitcoin: Empowering Financial Access
Beyond nations facing political instability and hyperinflation, Bitcoin’s appeal is expanding to areas with restricted access to conventional banking.
This broad interest underscores cryptocurrency’s applicability across various economic environments.
For individuals in areas where cash transactions are prevalent and bank access is hindered by prohibitive transport costs, digital wallets facilitating Bitcoin transfers offer a practical solution for financial inclusion.
As mobile phone ownership increases, these wallets provide a means for unbanked individuals to participate in finance and establish an independent store of value, bypassing traditional banking systems.
Ethereum: Smart Contracts and Decentralized Applications
While Bitcoin ignited the cryptocurrency revolution, Ethereum propelled it into a legitimate industry.
Often dubbed the “world computer” for decentralized applications (DApps), Ethereum’s introduction of smart contracts and the ERC20 standard for tokens has established its network as the global leader in distributed computing.
Blockchain-based assets, like utility and security tokens, are built upon the technological foundation of the ERC20 standard and smart tokens.
Utility tokens grant holders access to DApps or preferential use within cryptocurrency ecosystems and online games such as CryptoKitties. In contrast, security tokens transfer company shares to investors who hold the
Tokenization of Precious Metal Assets.
Unlike utility tokens, asset-backed tokens possess inherent value directly tied to the physical asset they represent.
Tokenization significantly boosts the liquidity of real-world assets in financial markets.
“Liquidity” refers to the speed and ease with which an asset can be traded. Digitizing real-world assets, such as real estate or vehicles, streamlines the purchase process, making it much faster and simpler.
This digitization also expands market access to investors who previously faced barriers.
While traditional financial institutions often exclude clients with insufficient capital, asset tokenization enables extensive fractionalization, dividing an asset into numerous small parts.
This allows all invested parties to benefit proportionally to their ownership, requiring only a small initial investment.
Bitpanda stands out as one of the first platforms to offer investments in digitized precious metals.
These metal tokens are backed by physical assets, gold, silver, platinum, and palladium, securely stored and insured in Swiss vaults.
Users can exchange digital precious metals for other digital assets on the Bitpanda platform or set up savings plans for recurring purchases.
Tether: Fiat-Pegged Cryptocurrencies
Stablecoins were developed to remove the volatility inherent in traditional cryptocurrencies by maintaining a consistent, stable value.
Typically, one unit of a stablecoin is “pegged” to the value of one US dollar or the Japanese yen (fiat-backed).
However, a stablecoin can also be pegged to another cryptocurrency (crypto-backed) or to real-world assets (commodity-backed). Ideally, a regulated financial entity holds the fiat currency or asset that backs a stablecoin.
The core idea behind stablecoins is that their value moves in tandem with a stable asset, offering the advantages of a cryptocurrency without price volatility.
For example, stablecoins like Tether and USD Coin, which are pegged to the US dollar, allow traders to quickly transition between cryptocurrencies on exchanges.
If a trader anticipates a drop in Bitcoin’s price, they can quickly convert their Bitcoin into a stablecoin like Tether or USD Coin to avoid significant value loss due to price movements before exchanging for another cryptocurrency like Ethereum.
Beyond trading, stablecoins also offer a means of value transfer and participation in the global financial system for individuals in regions experiencing economic instability, volatile domestic currencies, and limited banking access.
Start Your Crypto Journey with Zendwallet
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Our platform supports popular options like Bitcoin, USDT, and Ethereum, providing a user-friendly experience for transactions, balance monitoring, and effortless personal or business payments.
Want to go further with crypto? Download ZendWallet on the App Store or Play Store and start managing your digital assets.
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