Categories: Blockchain Investments
Topics: Cryptocurrency

How to Make Sense of All the Different Types of Cryptocurrencies

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— John

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Crypto doesn’t have to be confusing! While the new digital asset landscape is a broad one, this short guide can get you started.

How Many Types of Cryptocurrencies are There?

According to CoinMarketCap, there are more than 19,000 different cryptocurrencies in existence. And that number is growing constantly. Dozens of cryptocurrencies are created each day, and most will never rise from obscurity. But the right projects (with the right backing) can grow to support millions of users and billions of dollars in activity.

By far the most popular cryptocurrency is Bitcoin (BTC), which has had a market capitalization of up to $1.28 trillion. Bitcoin is so significant in the crypto market that in many ways it deserves a category of its own.

Other popular cryptocurrencies (called “altcoins”) include Ethereum (ETH), Tether (USDT), Binance Coin (BNB), and USD Coin (USDC). Here are the top 15 cryptocurrencies, sorted by market cap:

Since the number of cryptocurrencies is constantly growing, it can sometimes be difficult to keep track of them all. However, the most popular cryptocurrencies are relatively easy to find and buy — and those are the ones that deserve our attention. 

Centralized platforms like Coinbase and Binance provide busy marketplaces with real-time market functions. More recently, apps like Robin Hood and financial firms like E*Trade, Fidelity, and Schwab all offer the ability to buy, sell, and trade popular crypto tokens. It is also still possible to trade cryptos in a decentralized way, using anonymous exchanges, or even directly peer-to-peer, but this is far more technical and requires significant experience.

Cryptocurrencies are often divided into four main categories:

Crypto Type #1: Payment Tokens

These tokens are designed to be used as a medium of exchange, much like money. They are often called “coins” because of their monetary significance (but it’s important to not confuse the “coin” with “token,” as the terms aren’t interchangeable.) 

• Litecoin (LTC) is a peer-to-peer cryptocurrency created in 2011, inspired by Bitcoin and designed to improve upon its features. It offers faster transaction times and a different hashing algorithm (Scrypt), aiming to be more accessible for mining. Despite its similarities to Bitcoin, Litecoin’s quicker and more efficient transaction processing has garnered it the nickname “silver to Bitcoin’s gold.”
• Monero (XMR) is a privacy-focused cryptocurrency launched in 2014, prioritizing anonymity, decentralization, and scalability. It employs advanced cryptographic techniques, such as ring signatures and stealth addresses, to ensure the privacy of its users by obfuscating transaction details. This makes it nearly impossible to trace transactions back to individual users. While its emphasis on privacy has garnered a dedicated user base, it has also led to concerns about its use in illicit activities.

(Note: while Bitcoin (BTC) was created as a payment token, and can still function in that way, it’s in a category that’s all its own because of its size and popularity.

Crypto Type #2: Stablecoins

These tokens are designed to be pegged to a fiat currency, such as the US dollar. This means that the value of a stablecoin is supposed to remain relatively stable, with its value moving in lockstep with the underlying fiat. There are a number of different innovative methods used to accomplish this fixed value.

• Tether (USDT) is the most significant stablecoin in the world, and is in many ways the backbone of crypto payment settlements. Its price is tied directly to the US dollar because the developers claim to hold one US dollar for every circulating USDT. This system allows users to more easily make transfers from other cryptocurrencies back to U.S. dollars in a more timely manner than actually converting to standard currency. 
• USD Coin (USDC) is the US-based answer to Tether, and was launched in 2018 by the Centre Consortium, which consists of Circle and Coinbase. It pegs its price to the dollar by using fiat-collateralized reserves, which means it holds an amount of fiat currency equal to the amount of USD Coin in circulation. Because Circle is based in the US, it complies with all US regulations, making it the most prominent regulated digital asset.
• Dai (DAI) uses a complex system of market-based incentives to keep the price relatively in line with the dollar. It’s backed by the Maker Protocol (which also has its own coin, called Maker), which maintains a vast system of reserves, and then uses those reserves to make a market. Maker adjusts economic incentives in real time to constantly keep the value of Dai near $1. Whenever the value of Dai goes below $1, the protocol incentivizes users to increase the price. And when the value of Dai floats above $1, the incentives work the other way around. Maker claims that its market system is: “the world's first unbiased currency and leading decentralized stablecoin.”

Crypto Type #3: Utility Tokens: 

The blockchain offers an entire digital landscape of possible uses, and new functions are being discovered all the time. Utility tokens are used to operate the functions of the blockchain, control access, and in many cases, provide governance. One of the most important features of utility tokens is called “smart contracts,” which are built into the blockchain itself and can be executed using the utility tokens. 

Utility tokens can also be used as a medium of exchange (which sometimes causes confusion to those who mistakenly see the token as “just another coin.”) Since there are so many possible uses it can sometimes be difficult to grasp the breadth of what utility tokens can do, but the largest and most popular tokens give a picture of what’s possible now — and where the future is headed.

• Ethereum (ETH) - This is easily the largest and most well-known utility token (it’s also the #2 crypto in the world, behind Bitcoin). The Ethereum blockchain was designed and built in 2015 by a young Canadian programmer named Vitalik Buterin, who is now an important figure in the crypto world.
• Binance Coin (BNB) - This was originally started as platform that ran on Ethereum, but has since been moved to an independent blockchain of its own. It’s the primary token used by Binance (overwhelmingly the most-used crypto exchange in the world. During the crypto boom it processed $55 billion in transactions a day, compared to Coinbase’s $3 billion). It also provides access to the Binance Smart Chain (BSC), which hosts thousands of small altcoins and crypto projects. It is headed by Changpeng Zhao (known as “CZ” by his millions of fans), who is often considered the most powerful figure in crypto.
• Solana (SOL) - Founded in 2017, Solana has its own blockchain and was designed to compete with Ethereum. In addition to its blockchain, it features its own full-service platform that can support decentralized applications (called “dApps”). It also supports Web3 functions that let developers integrate Solana directly into their websites, databases, and stand-alone applications. Solana was also one of the first crypto projects to support non-fungible tokens (NFTs), which can verify unique ownership of art, music, and other digital assets (there are also projects that add NFT functionality to non-digital, real-world assets). Solana also has low transaction fees along with fast settlement times and has played a major role in bringing down transaction costs across the entire space.
• Polkadot (DOT) and Polygon (MATIC) - In the same way Solana greatly expanded the possibilities of utility tokens, Polkadot and Polygon are making their mark. They are currently faster and cheaper to use than any of the other major utility blockchains.

Crypto Type #4: Security Tokens

Security tokens derive their value from an external, tradable asset, and they are subject to federal securities regulations. They represent ownership in real-world assets such as real estate, stocks, or bonds, and must comply with relevant legal frameworks, ensuring investor protection. 

The tokenization of securities on a blockchain allows for more efficient, secure, and accessible asset trading and ownership. Security tokens can facilitate greater liquidity and market access by reducing barriers to entry for smaller or non-institutional investors. However, the regulatory complexity and compliance standards surrounding security tokens can be challenging for issuers and investors alike. 

• tZERO (TZROP) is a technology platform that aims to revolutionize traditional capital markets by integrating blockchain technology to trade digital assets. It seeks to make the capital markets more accessible, transparent, and inclusive by providing a marketplace for trading security tokens issued in Initial Security Token Offerings (ISTOs). It’s backed by an investment subsidiary of the US company Overstock.com (NASDAQ: OSTK).

While there are other names worth noting, like Blockchain Capital (BCAP) and SpiceVC (SPICE) (the first regulatory-compliant blockchain venture capital firm in the UK), ultimately security tokens are very new and use cases are still being explored.

Other Types of Cryptos

The world of digital assets has a lot of colorful corners. It’s worth mentioning a few of the niche-type cryptos you might hear about in the news — while keeping in mind that their popularity (and notoriety) don’t represent all of crypto.

Memecoins

These coins rely on popularity and novelty for much of their value. They deserve to be listed in a category of their own because of their ability to attract billions of dollars in investments — an impressive feat by any measure. However, because they lack the accountability and utility of other projects, they should generally be avoided.

• Dogecoin (DOGE) is the original “memecoin,” which caused a frenzy in 2021 when its price skyrocketed. The coin, which uses an image of a smiling Shiba Inu as its logo, is accepted as a form of payment by some major companies. Dogecoin was originally created in 2013 as a joke, long before crypto was taken seriously by the investing world. Unlike most memecoins, Dogecoin offers a small amount of utility by some companies and businesses that are willing to accept it as a form of payment.
• Shiba Inu (SHIB) is also a name you’ll encounter. The sudden success of Dogecoin led to this copycat (or should we say: copydog), which is named after the breed of dog on the Dogecoin logo. Shiba Inu hit a market cap of $42 billion during its all-time high.
• Pepecoin (PEPE) is proof that the memecoin phenomenon isn’t dead. This coin skyrocketed out of nowhere in the middle of the crypto winter, in May 2023. It generated a quick buzz of interest, then subsided, but not before reaching a $1 billion market cap.

The most important takeaway on the types of cryptocurrencies is this: despite their variety, cryptos are simply a new take on the financial world as it already exists — plus the potential of what it could become.

Just like the rest of the financial world, early investors are the ones who’ll make the biggest profits. You don’t have to do it on your own… Digest Publishing’s crypto guru Chris Curl has launched a Million Dollar Crypto Club that walks investors step-by-step to crypto gains. You can follow along as Chris turns a $50k portfolio of real money into $1 million (or more!) in less than two years. This is your chance to ride the next crypto bull like a pro.

Make it your own,

John Carl
Editor, Daily Profit Cycle