- Any cryptocurrency other than Bitcoin is referred to as an altcoin. These coins iterate upon the original blockchain concept, Bitcoin, to offer different and distinct use cases.
- Stablecoins are designed for price stability, which they draw from a reserve asset that backs them. This inturn lends the stablecoin volatility resistance.There are multiple types of cryptocurrency types/sectors, from Currency to Smart Contract Platform, which serve different purposes to help create a seamless crypto ecosystem.
Coin or Token? Bitcoin or altcoin? Meme coins, utility tokens, stablecoins…is it all starting to sound like a foreign language?
There are many different types of crypto out there with over 20,000 coins in existence . It can be daunting (to say the very least).
To simplify things, we look to CoinDesk’s Digital Asset Classification Standard (DACS) to make sense of all the assets circulating the ecosystem by categorising them into sectors. We’ll explain these in the article below, using asset examples, so you can take on the crypto world better informed.
Types of Crypto (with Examples)
The original use case for crypto was digital cash. A borderless, accessible alternative to fiat currency facilitating peer-to-peer payments. This crypto type can be thought of as digital money sitting on a decentralised network. It's designed to surpass traditional fiat currency in its functional quality as money. As a result, currency tokens can disrupt the present global payments systems.
1. Bitcoin (BTC)
Bitcoin is a peer-to-peer decentralised digital currency – the first of its kind. This means users transact with one another, without an intermediary or a third party like a bank to facilitate the transfer . This is made possible through Bitcoin’s revolutionary blockchain technology. This novel form of digital money is censorship-resistant, permissionless and highly impervious to seizure.
People use Bitcoin for a number of reasons. Like fiat currencies, Bitcoin can be used as a medium of exchange to buy anything from coffee to cars, as long as the vendor accepts Bitcoin as payment. It is permissionless, so anyone with an internet connection can send and receive, plus no central controlling party can stop you using the network.
Bitcoin’s digital nature allows it to be transferred globally with ease. The cost of sending Bitcoin across borders is often much lower than international bank transfers. In many of the world’s unbanked countries, Bitcoin is the preferred (and at times only) method of sending remittances as it is the cheapest and easiest option.Bitcoin is also used as a store of value.
Since its inception, Bitcoin’s value growth has been seismic. With its proliferation, many have referred to Bitcoin as “digital gold”. This comparison comes from Bitcoin’s limited supply (only 21 million Bitcoin will ever exist) and fixed supply schedule.
Further Reading: Bitcoin Basics: A Beginner's Guide
Smart Contract Platform Tokens
Like the toll you pay whenever you hop on the highway, Smart Contract Platform tokens are cryptocurrencies that are used to pay the costs of using a network. These tokens are paid by a user to the nodes responsible for maintaining the network. In return, users can access applications and services, or even create their own applications, on the network.
Also known as infrastructure tokens, their features can overlap with Currency sector tokens. The key difference is that Smart Contract Platform tokens are required for users to interact with a blockchain for any type of transaction, whereas payment Currency tokens are mostly limited to making transactions.
Tokens with a focus on interoperability, such as Cosmos and Polkadot, (i.e. linking multiple blockchains/projects together) are also considered infrastructure tokens.
2. Ethereum (ETH)
Ethereum was founded by developer Vitalik Buterin in 2015, based on an idea he conceived two years prior. Like Bitcoin, his first crypto interest, Ethereum is an open-source blockchain that validates and records transactions. Beyond this similarity the two networks are distinctly different.
Ethereum empowers users and developers to take an active role in the growth of the Ethereum ecosystem. It is a space for developers to create and deploy decentralised apps (DApps). It is also a marketplace for users to access Decentralised Finance (DeFi) services, play-to-earn games, apps, and non-fungible tokens (NFTs).
This is all possible through Ethereum’s killer program: smart contracts.
These digital contracts simplify trade between parties, auto-executing the terms of an agreement, without the need for an intermediary, if predetermined terms are met. The use of smart contracts, especially on the Ethereum network, has opened up a world of possible use cases for crypto. Ether (ETH) is the native crypto on the Ethereum network.
Further Reading: What is Ethereum? A Beginner's Guide
3. Binance Coin (BNB)
BNB is a utility token created by Binance, a crypto exchange that launched in 2017. It has some elements of currency and utility crypto types. BNB can be used to pay for goods and services within and outside of the network. BNB is also used to pay network gas fees on Binance’s smart contract blockchain, BNB Chain.
Outside of this, BNB has a range of useful functions on the BNB Chain. These include:
- Trading fee discounts when you pay in BNB on Binance’s exchange
- Access to exclusive token sales
- Access to BNB Chain ecosystem of DeFi gaming, DApps, and more
4. Cardano (ADA)
Founded in 2017 by Ethereum co-founder, Charles Hoskinson, Cardano is an open-source, proof of stake (PoS) blockchain built from the ground up by bright minds in both crypto and academia. Using a first principles approach combined with scientific research methods, Cardano has established itself as a top-ten crypto asset by market cap.
Cardano differentiates itself from other smart contract blockchains through the deep partnerships its development team forms with leading academics and universities. In contrast to the ‘fail fast, pivot often’ modus operandi of many modern-day tech entrepreneurs, Cardano takes a more methodical approach. Any upgrades to the code underpinning the network is held to strict mathematical standards and painstakingly reviewed before implementation. The idea is to prevent any network failures by favouring a right-first-time quality approach, even if progression of the blockchain is slower.
Despite Cardano’s conservative development philosophy, the blockchain has suffered multiple outages and downtime.Regardless, Cardano network is home to many decentralised applications (DApps) and associated assets , many of which appeared in 2021 and 2022 as developers saw potential in the platform.
Like Ethereum, these apps and assets are built using programmable smart contracts that administer and operate the functions the dApps features.
ADA is the native crypto on the Cardano network, named after the 19th-century mathematician and world’s first computer programmer, Ada Lovelace. The network is also named after another famous mathematician, Geralamo Cardano.
5. Solana (SOL)
Another open-source blockchain, Solana was established in 2020 with a goal to increase transaction speeds without compromising on security and privacy – solving the blockchain trilemma. The network uses a unique hybrid consensus model of Proof of Stake (PoS) and Proof of History (PoH) mechanisms.
The PoH model supposedly addresses the issue of time agreement among validator nodes, effectively recording a digital timestamp of all incoming transactions. With this timestamp already pre-recorded, validators have one less factor to consider when confirming transactions, effectively speeding up the PoS confirmation process. This hybrid consensus mechanism also uses significantly less computational power compared to Proof of Work (PoW), which is used by Bitcoin.
SOL is the native token on the Solana networks and is used for making or sending transactions, interacting with smart contracts, or for staking. Despite the novel consensus mechanism, Solana has faced issues with multiple outages, network restarts and other issues that have raised questions. However, it remains a heavyweight asset considering its market cap.
Stablecoins attempt to offer relative price stability. Their market value is usually pegged to the value of a stable asset, like USD.
Stablecoins are designed to be resistant to volatility, as the name suggests. Their price is intended to remain stable, inline with the asset it’s pegged to, so you shouldn't see significant price variation.
Stablecoin projects claim to be backed by a reserve asset such as the US Dollar, which is the case for Tether (USDT) and USDC Other stablecoins (e.g DAI) might be backed by crypto reserves, or in some cases nothing at all, which applies to algorithmic backed stablecoins.
The larger stablecoins are traded at high volumes; similar to cash in a traditional market, as investors use them as vehicles to take profit, or wait-out the market for the next opportunity.
6. Tether (USDT)
Officially launched in 2014, Tether (USDT) is a stablecoin that streamlines the use of fiat currency on the blockchain. The coin is pegged to the U.S. Dollar with claims to be backed by a variety of reserve assets equivalent to (or possibly greater than) its total supply.
By backing the coin with reserve assets, Tether has been able to avoid the price volatility that often plagues other cryptocurrencies. Through stability, Tether’s founders hope to create digital money that can be used to make everyday transactions within the crypto ecosystem.
7. USD Coin (USDC)
Created by CENTRE with support from Circle and Coinbase, USD Coin (USDC) is another stablecoin pegged 1:1 to the U.S. Dollar. Launched in September 2018, each dollar of USDC is backed by a U.S. Dollar which exists as a mix of cash and Treasury bonds. Its reserves are regularly and publicly reviewed by an external accounting firm with their findings published monthly.
Like other stablecoins, it is mainly used for cashless everyday transactions and as a store of value given its relative stability.
8. Dai (DAI)
Dai, which is pegged to the US Dollar, exists on the Ethereum network and is issued by the Maker protocol. Dai can be acquired in two ways: on the open market, like any other asset, or by creating a collateralised debt position (CDP) on the Maker platform.
Opening a CDP sees Maker users deposit a cryptocurrency, such as Ether, in exchange for Dai. The amount of Dai generated depends on various factors such as the fiat value of crypto deposited, the quality of the crypto asset deposited and minimum deposit amounts Maker requires.
Using smart contracts, Maker manages the supply and demand of Dai to maintain its value and so peg with the US Dollar.
Currency BaaS (Utility)
Blockchains as a service offer utility and are created to serve a particular purpose (or multiple purposes) on a specific platform. In essence, they allow users to harness the unique features of a blockchain or dApp.
These coins then are also referred to as utility tokens and can also be used to pay for products or services on a network (like Binance’s BNB token). Other times, they can function as a reward to users for contributing to the network (like Theta’s TFuel). Or they can be the means through which a user can unlock a network’s utility (like XRP for making quick, liquid, global money transfers).
9. Ripple (XRP)
When it comes to cross-border transactions, money transfers can be cancelled, held or even lost by third parties, such as banks. On top of that, fees are charged for the service and the sender/receiver is exposed to fluctuating exchange rates, which affect the real value of funds exchanged between the transacting parties.
XRP represents a solution to the cumbersome and expensive money transfer facilities currently available.
XRP then serves as a bridge currency for financial institutions and payment providers to settle transactions quickly and securely across borders with less friction. For example, if a bank in the United States wants to send money to a bank in Japan, they could use XRP to facilitate the transaction. Instead of going through multiple intermediaries and taking several days to complete, the transaction could be settled within seconds using XRP. This saves time and simplifies the process of international transactions. Banks in various countries have also adopted XRP for routine hawala transfers.
Meme coins are cryptocurrencies inspired by the social currency of the internet: memes. They could be directly inspired by a meme, like the dog-themed tokens Dogecoin (DOGE) and Shiba Inu (SHIB), or centred around a community interest, like garlic bread (GRLC).
Anyone with the right technical knowledge and an internet connection can make and distribute a meme coin.
Meme coins typically have a massive or unlimited supply, which accounts for their very low per-unit price.
10. Dogecoin (DOGE)
Dubbed the original meme coin, DOGE started out as a satirical commentary on the idea of crypto by former Adobe product manager, Jackson Palmer, in 2013. Eventually, the idea grew in popularity, and Palmer teamed up with software developer, Billy Markus, to make DOGE into an actual crypto.
It experienced brief record growth during the 2017/18 crypto bubble before falling in value. After an endorsement by Elon Musk in 2021, the coin rose once again. Its price rose once more after Musk’s takeover offer of Twitter in 2022 and again when the Doge logo replaced the Twitter logo on the social media platform for a period . The price pumped several times during and after these moments; events that strongly correlated with Musk’s tweets about Dogecoin (or crypto in general). It is currently one of the top cryptocurrencies by market cap.
Can you invest in all types of crypto?
One of the core premises of crypto is accessibility for everyone. Knowing this, your portfolio doesn’t have to be limited by one type of asset. At Caleb & Brown, we have hundreds of assets available for you to invest in. If you’re ready to get started, contact a broker today.
Do you have to buy a complete coin or token in order to invest in crypto?
Similar to fractional shares in traditional markets, cryptocurrencies are divisible. You do not need to own a complete coin or token to hold an investment.
Why are there so many different types of crypto?
Most crypto projects are open-source. Any aspiring crypto developer can view the source code of a coin and replicate it to create their own crypto. Because of this accessibility, over 20,000 cryptocurrencies (and counting) have been created since Bitcoin’s inception.
Make Your First Crypto Investment
There are many different crypto projects out there, each with unique and varying use cases. With so many projects on the market, speculative opinions abound. At Caleb & Brown we take an objective, factual approach to crypto, providing resources to assist you to make an informed investment decision.
If you’re ready to invest in any one of these cryptocurrencies, working with a crypto broker is one of the easiest and safest ways to start investing. Caleb & Brown specialises in delivering a personalised experience for every investor, ensuring you can make an informed decision on every trade. Not to mention key features such as:
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Trusted by over 23,000 clients in over 100 countries, Caleb & Brown has the experience needed to help you execute your first crypto investment.
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Disclaimer: This assessment does not consider your personal circumstances, and should not be construed as financial, legal or investment advice. These thoughts are ours only and should only be taken as educational by the reader. Under no circumstances do we make recommendation or assurance towards the views expressed in the blog-post. The Company disclaims all duties and liabilities, including liability for negligence, for any loss or damage which is suffered or incurred by any person acting on any information provided.