Cryptocurrency has been steadily gaining popularity in recent years. From the rise of Bitcoin to the DOGE coin trend brought by Elon Musk, many have had some exposure to the crypto community. Much like an arms race between several countries, different types of cryptocurrency arose from the success of Bitcoin.
Most alternatives, or altcoins, have the same technology as the pioneer. But, with a few tweaks to provide freshness in their product and potentially capture investors.
As of November 2021, there are over 12,000 cryptocurrencies present.
Here, we’ll talk about the general categorizations of these coins, which are the most popular, and what qualities set them apart from each other.
Hopefully, this would help you make better, informed decisions in the digital market, whether as a newbie or not.
🧐 What is cryptocurrency?
Before going into the diversity, you might ask, what is cryptocurrency?
It is essentially a digital “coin” with no inherent value, much like the paper bills you have on your wallet.
And just like those pieces of paper with faces of notable people, these “coins” could be used to avail products and services from a store, or in this case, a digital market.
The difference is that cryptocurrencies are protected with complex cryptography. This is ensuring safety, and a centralized system like a bank doesn’t define the value.
Although we say that there are different types of cryptocurrencies, most of them apply the same framework of Bitcoin with a few added features to offer something different.
All alternative types adhere to a set of principles established by Bitcoin:
- There is no intermediary or central authority that manages the assets.
- Transactions are codes in a ledger, blockchain. They are verified through review by various people and companies.
- cryptography of the assets make it secure.
- Management and trading of assets through digital/blockchain wallets.
🤔 What are the different types of cryptocurrency?
Related Article: Cryptocurrency: An Introductory Guide
Cryptocurrencies are in 3 categories: Bitcoin, altcoins, and tokens.
Most people would use terms such as coins and tokens synonymously. Similar as they are, they function differently.
Of course, understanding the difference paves the way in having the basics of cryptocurrency down.
Different Types of Cryptocurrency: Coins vs Tokens
Treat cryptocurrency coins as you would your fiat money.
They are based on their blockchain. It is like how USD is the currency of the USA. So, ether (ETH) is the digital currency of the Ethereum blockchain.
They function as a transaction medium with a value determined by the performance of the blockchain.
Bitcoin is the most popular cryptocurrency. Hence it has its categorization. All non-Bitcoin cryptocurrencies are altcoins or alternatives to Bitcoin.
Bitcoin pioneered a decentralized public ledger called a blockchain that records every transaction digitally. This technology allowed them to establish the foundation for most cryptocurrencies today.
Different Types of Cryptocurrency: Proof-of-work vs Proof-of-stake
Verification of transactions is done through the consensus of multiple entities, be it people or companies, guaranteeing legitimacy.
Each transaction is constantly turned into code with cryptography within the blockchain, ensuring safety.
The generation of bitcoin is done through “mining.”
It utilizes capable computers known as “nodes” to review locks of transactions and acquire bitcoin from the pool of 21 million coins.
This tedious process is known as “proof-of-work” (PoW).
Bitcoin being the spearhead of the new era of financing, it has been recognized by many worldwide resulting in it having the highest market capitalization with runners up far from its tracks.
Many altcoins inherit the ways and functionality of Bitcoin with slight modifications. With that said, there are also altcoins that present significant alterations from the original.
Some altcoins practice a “proof-of-stake” method, addressing the rather destructive nature of the PoW method in terms of power consumption.
The difference is that PoW encourages miners to be the first to verify and validate a block of transactions.
There is no limit in their mining power, ultimately leading to the use of high-end computers and more electric consumption.
On the other hand, Proof-of-stake encourages users to “stake” their coins in return for more mining power.
Thus, miners’ activities are limited relative to the number of coins they currently hold.
Different Types of Cryptocurrency: Altcoins vs Bitcoin
Some altcoins deviate from Bitcoins that function as a medium of exchange. While some exhibit a specific purpose or to create smart contracts.
Some are results of “forking,” specifically “hard forks.” This is a phenomenon where there is a divide between the developers of the blockchain network, and a direction must be chosen.
As mentioned before, altcoins are essentially Bitcoin copies that have minor changes to set them apart and potentially fill the original left gap.
A prevalent example of an altcoin that seems far-fetched in comparison to the ways of Bitcoin is Ethereum, which practices proof-of-stake methodology.
However, as of writing, none of the alternatives come close to Bitcoin’s success, either in popularity or market value.
Tokens are also based on their own blockchain; however, they have more functions, usually more like a placeholder for assets.
Tokens are programmable to carry out smart contracts.
With tokens, the owner could possess resources outside the initial blockchain network.
Tokens could hold anything of value, including real estate or company shares and services such as electricity or cyber security.
These tokens represent assets that anyone can trade or keep for interest.
Classifications of Tokens
Tokens function as a currency used for payment, exhibiting a value determined by a network of users.
A decentralized system defines the value of such a token. This means that the community technically determines its value.
Think of it as democracy. People will put value and pay for a token that they believe will have positive returns. These are classified as value tokens.
Coins are the most common examples of value tokens. Some derive their price through the activity of the blockchain.
This means the more activity within the network, the higher the value.
Meanwhile, some coins, like Bitcoin, increase in value through laws of supply and demand.
Naturally, coins like Bitcoin increase in value the less supply there is in the public market.
As stated before, tokens have more functions than coins.
Tokens could act like stocks. You can stake them to a project or company and expect profit whenever what you staked for flourishes.
Tokens that have this purpose are classified as security tokens.
While some tokens could have a specific function, some could provide services like file sharing and or access to applications.
These tokens are known to be utility tokens.
🔥 Most Common Cryptocurrencies
You might be able to tell from the number of times I’ve mentioned this particular cryptocurrency. Bitcoin is extremely popular among the different types of cryptocurrency.
Not only is it popular, but it is also precious.
As stated before, Bitcoin is the progenitor of all cryptocurrencies. However, the creator of Bitcoin itself remains a mystery.
Created in 2009 by an unknown entity only known as Satoshi Nakamoto, Bitcoin proceeded to spearhead a new generation of handling finance through digital means without the need for an intermediary such as a bank or government.
Blockchain technology introduced this decentralized system, allowing for safe, anonymous transactions with low fees relative to traditional means.
Today, Bitcoin stands as the world’s leading cryptocurrency with more than one trillion USD market capitalization, with Ethereum as runner-up, only having half of Bitcoin’s market cap.
Similar to Bitcoin, Ethereum uses blockchain technology. However, it deviates from Bitcoin’s functionality as “currency.”
Ethereum blockchain allows for creating and facilitation smart contracts and decentralized apps (dApps: dee-apps).
This system allows more liberty for network participants as this will enable them to use tokens to represent physical property or services for exchange.
The “currency” within the Ethereum blockchain is Ether. This serves as the active medium used for performing actions in the dApps within the blockchain.
Unlike Bitcoin, the creation of Ether is limitless, which may lead to a decline in value in the long run.
In 2021, Ethereum digressed from the proof-of-work consensus system to the proof-of-stake system leading to a lower energy requirement and faster transaction speeds.
The system’s versatility behind the Ethereum blockchain permits secure exchanges of physical property or services without an intermediary. They are making it compelling for people from all types of backgrounds.
Created by Charlie Lee, Litecoin results from a fork in the Bitcoin blockchain.
It exhibits many similarities with the other different types of cryptocurrency, with only a few alterations aiming to provide an experience better than Bitcoin.
The most notable of these alterations is its application of the Lightning Network, allowing the blockchain to process transactions much faster than Bitcoin.
In addition, smaller fees and faster speed make Litecoin a preferred choice over Bitcoin for micropayments hence the name “Lite.”
As of late November 2021, Litecoin has a market cap of around 15 billion USD and a value of about 220 USD per token.
Binance Coin (BNB)
Binance is one of the most popular cryptocurrency exchange platforms worldwide.
The currency within the network is Binance Coin (BNB).
The Binance platform, established by Changpeng Zhao, used to be based on the Ethereum blockchain, but they eventually developed their Binance blockchain and now reside in it.
Binance Coin was initially programmed as a utility token that offered discounts on trading fees within the platform.
Now it could be used to availing various products and services and decentralized power exchanges for apps.
Only a maximum of 200 million tokens is in circulation within the Binance network. The platform increases demand by periodically buying back tickets and “burning” or destroying them.
Like the Ethereum blockchain, Binance reviews its transactions through a proof-of-stake consensus system.
Finally, Binance Coin stands as the third-largest cryptocurrency with a stable coin capitalization of 101 billion USD with 611 USD per token.
If you paid any attention to Twitter or Reddit in the early months of 2021, you would know about the meme that is Dogecoin.
Created by Billy Markus and Jackson Palmer in 2013, Dogecoin was a “meme coin” made to be a joke addressing the speculation on cryptocurrency.
Presenting a meme of a Shiba Inu dog as its avatar, Reddit could look at some investors and acquire a good investment.
It has the same functions as Bitcoin, a medium of exchange used as a form of payment for goods and services, but it proves to be relatively quicker in processing transactions.
It runs a proof-of-work system in the blockchain with unlimited coins to mine, compared to the limited amount of Bitcoin.
Recognition from Tesla CEO Elon Musk, and owner of Dallas Mavericks, Mark Cuban, helped the cryptocurrency gain popularity leading to a massive increase in its value.
As of writing, Dogecoin has a market capitalization of 28.7 billion USD with a per-token value of 0.217 USD.
Probably the least volatile in terms of value amongst this list. Tether is one of the first cryptocurrencies to be promoted as a “stablecoin.”
Stablecoins are known for their relative stability in value if you compare it to most tokens in the crypto market.
This is because stablecoins aim to link their market value to an already existing form of fiat currency.
This qualification aims to provide the benefits of cryptocurrency without the anxiety from recurring fluctuations in value.
Many believe that this could be good for users who would be afraid to invest in crypto due to the market’s volatility.
Tether is tied to, or in this case, tethered to, the US dollar. It presumably maintains a 1:1 ratio to its value hence its ticker being “USDT.”
Tether has a market capitalization of 72.6 billion USD with a per-token value of, as expected, 1 US dollar as of late November 2021.
Ripple Labs, Inc., XRP are coins for exchanging into other cryptocurrencies or as currency for transactions within the Ripple network.
Referred to as the “banker’s coin,” Ripple is popular among many banks and governments. This is it making one of the best choices for people active within finance looking for an alternative to fiat currency.
In addition, ripple distinguishes itself from other cryptocurrencies in several ways.
Unlike many cryptocurrencies, you don’t need to mine XRP tokens. Instead, there are already 100 million XRP tokens existing within the network.
Though Ripple has the same blockchain technology, the review of transactions is done via a poll by the nodes within the network.
Compared to the methods of other cryptocurrencies, this poll system allows Ripple to have quicker and cheaper transactions.
However, the company behind Ripple practices a centralized system. This means that most of the XRP tokens are by Ripple Labs themselves. They may control the changes in the value of the said token.
As of late November 2021, the market cap of XRP is at 48.4 billion USD, with each token amounting to 1.02 US dollars.
Bitcoin Cash (BCH)
Another result of a fork in Bitcoin, Bitcoin Cash, aims to fix the scalability issues of the original Bitcoin.
A dissonance within the developers and miners of Bitcoin regarding the deduced standstill of the network due to relatively slow transaction speeds and expensive fees led to the creation of Bitcoin Cash.
It functions similarly to Bitcoin. The difference is that Bitcoin Cash increased the size of its transaction blocks from 1MB to 8MB. Thus, fostering faster confirmation times and lower fees.
As of late November 2021, Bitcoin Cash is at 11.5 billion USD and has a per-token value of 612 USD.
Developed by one of the co-founders of Ethereum, Gavin Woods, Polkadot aims to be the bridge connecting blockchains allowing smooth communication and providing security for people interested in creating their blockchains.
Since its establishment in 2020, the network has gained quite an amount of popularity to be one of the more extensive networks in the market in a short time.
Polkadot runs with two blockchains, with the primary being the “relay” blockchain that allows interoperability between different networks and records transactions permanently.
The other consists of user-generated blockchains known as “parachains.” These parachains could be programmed by developers for various functions without worrying about security.
Unlike in the Ethereum network, parallel blockchains within the Polkadot network benefit from the security measures established by the network to protect small projects from attacks.
Polkadot market capitalization amounts to 38.1 billion USD and a value of 38.4 USD for each token as of late November 2021.
Labeled as the “Ethereum killer,” Cardano markets itself as a third-generation platform carrying along with its honor from extensive research efforts brought by its developers.
Co-founded by Charles Hoskinson, another co-founder of Ethereum who had disagreements regarding the future of the network, Cardano’s blockchain is backed by the many researchers that supported its creation.
ADA is the token for exchange within the blockchain.
Cardano utilizes a proof-of-stake consensus protocol. It is under the Ouroboros family, a proof-of-stake protocol that is known to be the first to be testable safe.
Compared to other proof-of-stake systems, Ouroboros boasts the security and sustainability of the blockchains that make use of it.
Cardano focuses on providing more functions compared to Ethereum with the ability to manage and trace identities within the network, addressing issues such as fraud and contact tracing, to name a few.
Cardano sits at 6th in the market capitalization rankings with a value of 54.1 billion USD and 1.63 USD for one ADA as of writing.
There are a number of ways you can trade physically in reality. This isn’t lost in the digital world of crypto.
Understanding the different types of cryptocurrency could help you decide what to invest in and your future actions.
❓You Might Ask
1. What cryptocurrency is best for beginners?
It would always be wise to look into the backgrounds of the products you’re looking to invest in.
You might want to look into investing in cryptocurrencies that are already well-known and have high traction within the market.
- Bitcoin (BTC) is arguably the most popular and most valuable cryptocurrency currently worldwide. The value would climb higher with miners closing in on the 21 million existing token limits.
- Ethereum (ETH) – Second to Bitcoin, Ethereum offers more freedom in trading assets using innovative contract technology.
- Bitcoin Cash (BCH) – A result of a hard fork of Bitcoin. It presents the same functionality as Bitcoin with faster transaction speed and lowers fees.
- Tether (USDT) – Good for beginners looking to avoid the recurring fluctuations in the crypto market. This offers the advantages of cryptocurrency without the significant risk of massive losses due to market volatility.
- Cardano (ADA) – Known for its academic backing, Cardano sells itself as a “third-generation crypto,” exhibiting features similar to Bitcoin and Ethereum with better security, efficiency, and price.
2. What is the most searched cryptocurrency among the different types of cryptocurrency?
It wouldn’t come as a surprise to learn that the most searched cryptocurrency is the pioneer, Bitcoin. Its domination over the market and perceived potential growth attracts the attention of many.
The runner-up Ethereum naturally follows Bitcoin in popularity brought by its execution of decentralized finance (Defi) through smart contracts.
Other recent popular searches for cryptocurrencies include Dogecoin and SHIBA INU, the meme coins that gained popularity through recognition from Redditors and notable persons such as Elon Musk.
3. How do you know which crypto will go up among the different types of cryptocurrency?
Attempting to match the volatility of the crypto market ideally several is almost impossible.
Sometimes, events just happen out of nowhere. Because of this, you could lose 500 USD because you held on to your tokens a little too long.
To avoid this, try to gather as much information on what’s happening regarding your assets.
Price – consider the cost of the tokens you’re looking to invest in or already have. Allocating resources into low-cost tokens may prove a wiser decision than shilling on expensive ones.
Adoption – take time to learn what the project has to offer. More prominent companies or networks may look into adopting the project you’ve invested in.
Supply – cryptocurrencies like Bitcoin have a limited number of coins in the market.
Activity – this is more for the short-term. Information and graphs on cryptocurrency performance are available publicly online. This is an excellent indicator to see which ones are catching users’ interests.