6 Types of Cryptocurrencies
Key Takeaways
- The crypto ecosystem has grown massively since Bitcoin’s 2009 launch, now encompassing over 23,000 cryptocurrencies according to CoinMarketCap.
- Crypto assets can be categorized into six types: coins, utility tokens, governance tokens, stablecoins, NFTs, and ordinals.
- Each category serves a unique purpose, such as securing blockchains (coins), facilitating trading (stablecoins), providing functionality within ecosystems (utility & governance tokens), or representing digital collectibles (NFTs & ordinals).
- Understanding these types helps navigate the diverse and complex world of digital assets, aiding in informed decision-making for investors and users alike.
Ever since the launch of Bitcoin in 2009, the crypto ecosystem has continued to expand. According to CoinMarketCap, in 2024 there are nearly 23,000 cryptocurrencies listed on its platform. While it may seem massive, this list doesn’t truly reflect the real numbers in the ecosystem as many cryptocurrencies are not even listed. However, did you know that among the thousands there are multiple different types of crypto, beyond just coins and tokens?
Understanding the various types of crypto and the purpose they serve can help you navigate the complex world of digital assets. In this article, we’ll go over the six different types of cryptocurrencies and their specifics.
6 Types of Cryptocurrencies – an Overview
The crypto ecosystem has continued to branch into new areas. To support the growing innovation in the space, crypto developers created new uses for cryptocurrencies. This led to the differentiation of six types of cryptocurrency:
- Crypto coins
- Utility tokens
- Governance tokens
- Stablecoins
- NFTs
- Ordinals
Each of these categories has unique characteristics and functions. Let’s delve into the different types of cryptocurrencies in more detail, to better understand their roles.
Crypto Coins
Bitcoin launched in 2009 and became the first crypto coin as well as the foundation of the current crypto ecosystem. In effect, it gave rise to the thousands of types of cryptocurrencies we know today. But what is a crypto coin? Simply put, it’s a digital currency that operates on its own blockchain. Crypto coins serve primarily as a means of exchange or a store of value with Bitcoin being a prime example.
Coins are essential for securing the blockchain and incentivizing nodes to add new blocks. Blockchains use their native coins for paying transaction fees on their network, and for rewarding network nodes for their operation. Here are some examples:
- Bitcoin (BTC): The first and most well-known cryptocurrency, used primarily as digital gold. It’s essential for the proper operations of the Bitcoin network, being used to pay transaction fees and reward miners.
- Ethereum (ETH): Ethereum represents the biggest smart contracts platform in crypto. Its native ETH is used for transaction fees and computational services on the Ethereum network. Users staking their ETH to support the network get an annual percentage yield.
- Litecoin (LTC): Often referred to as the silver to Bitcoin’s gold, Litecoin was designed for cheaper and faster transactions. Just like BTC, LTC uses the proof-of-work consensus and is used to pay for fees and reward miners.
Utility Tokens
Before tackling utility tokens, we must say a few words about tokens in general. Much like crypto coins, tokens are digital assets with value. However, unlike coins, they don’t have their own blockchain. Instead, tokens are units of value created on top of a base blockchain using its token protocols. Since they are not the native coin of the base network, tokens are not used to reward nodes or secure the network.
Utility tokens originated with Ethereum’s programmable capabilities and the ERC-20 token standard. They serve specific functions within a particular ecosystem, often granting access to a service or product. There are thousands of tokens living on the Ethereum mainnet and most of the 23,000 entries listed on CoinMarketCap are actually tokens. Here are some examples:
- Chainlink (LINK): Chainlink is an oracle network on Ethereum that connects apps on the blockchain to the real world and vice versa. The LINK token is used to pay for services within the Chainlink decentralized network.
- Filecoin (FIL): Filecoin represents a decentralized data storage marketplace. With the FIL token, users can buy and sell storage space on the Filecoin network.
- Decentraland (MANA): Decentraland is a gaming metaverse. The MANA token is used to purchase digital land and other goods within it.
Governance Tokens
Governance tokens empower holders with voting rights and allow them to participate in the decision-making processes of a blockchain project. They often combine other types of utility within them but there are exceptions with tokens serving purely for governance. These tokens are crucial for decentralized platforms that rely on community input for development and decentralized governance. A few examples:
- Uniswap (UNI): Uniswap is the biggest decentralized exchange on Ethereum. With the UNI token, participants can vote on future protocol changes and updates.
- Maker (MKR): MakerDAO is a decentralized autonomous organization. The MKR token is used in MakerDAO’s governance to manage the DAI stablecoin.
- Compound (COMP): Compound is a lending protocol that allows users to lend and borrow digital assets. The COMP token enables the decentralized governance of the protocol.
Stablecoins
Stablecoins are crypto tokens designed to maintain a stable value and are usually pegged to a real-world fiat currency like the US dollar. Depending on their underlying collateral, stablecoins fall into three types – fiat-backed, crypto-backed and algorithmic. Stablecoins are used to facilitate trading and provide a safe haven during periods of market volatility. Some of the most famous stablecoins on the current market are:
- Tether (USDT): Pegged to the US dollar, widely used for trading and transfers. According to its parent company (Tether), all Tether tokens are backed 1:1 to a corresponding fiat currency by Tether’s reserves.
- USD Coin (USDC): Another dollar-pegged stablecoin used in various financial applications. It’s managed by the company Circle and USDC is backed 1:1 with USD.
- Dai (DAI): A decentralized stablecoin managed by MakerDAO, maintaining a 1:1 value with the US dollar. Unlike Tether, its collateral ratio is higher than 1:1 since it’s backed up by Ethereum-based assets.
Algorithmic stablecoins are still considered experimental. They experienced a huge fall-off with the crash of Terra in May 2022.
NFTs
Non-fungible tokens are unique digital assets that have different characteristics. NFTs derive their value from their uniqueness. They can’t be interchangeably swapped like other crypto tokens, since no two NFTs could be regarded as exactly equal. This is where the name “non-fungible” comes from.
NFTs follow a different standard than regular tokens. On Ethereum, NFTs utilize the ERC-721 token standard, while fungible tokens (utility tokens, governance tokens, etc) follow ERC-20. NFTs can contain and represent various types of data, such as art, music, videos, and other forms of digital content. Some famous examples include:
- CryptoPunks: One of the first NFT collections on the Ethereum blockchain. On 12 February 2022, CryptoPunk #5822 sold for 8,000 ETH worth $23.7 million at the time.
- Bored Ape Yacht Club: A famous collection of unique digital avatars. The biggest sale was Ape #8817 for over $3.4 million.
- Beeple’s “Everydays: The First 5000 Days”: The single NFT artwork contained 5000 digital images as part of the artist’s idea. It sold in 2021 for $69 million, making it the most expensive NFT in history.
Ordinals
Among the various types of cryptocurrencies you might encounter, the concept of Ordinals is the newest. In general terms, they’re a type of non-fungible tokens. What makes them unique is that they’re inscribed on individual Satoshis on the Bitcoin network (1 BTC = 100,000,000 Satoshis). Casey Rodarmor was the one who proposed the idea and launched the protocol in January 2023.
Unlike Ethereum NFTs, Ordinals follow the BRC-20 token standard which is the common standard on the Bitcoin network. Ordinals can attach different types of data such as images and videos to a single Satoshi.
Each Ordinal derives its value from the order of rarity. The earlier a Satoshi is in the sequence, the more valuable the attached Ordinal will be. Ordinals add new use cases to Bitcoin’s robust and secure network and can be used in digital collectibles and gamification. Rodarmor created the first Ordinals NFT on 14 December 2022 and it represented a black and white skull.
Closing Thoughts
The crypto ecosystem is varied and diverse, with different types of cryptocurrencies serving distinct purposes. From coins and utility tokens to stablecoins and NFTs, each type of token plays a crucial role in the broader crypto landscape. Knowing the differences between these tokens can help you make more informed decisions and better navigate the world of crypto.
FAQs
Crypto Coins vs Tokens – What’s the Difference?
Crypto coins operate on their own blockchain and are primarily used as a medium of exchange, while tokens are built on existing blockchains and can serve multiple functions within their ecosystem.
NFTs vs Ordinals – What’s the Difference?
NFTs are unique digital assets that represent ownership of specific items, while ordinals are serialized items valued for their order or rarity in a sequence.
What Are the Different Types of Crypto Tokens?
Crypto tokens can be classified into several types, including utility tokens, governance tokens, NFTs, and stablecoins, each serving distinct functions within their respective ecosystems.
