8 Different Types Of Cryptocurrencies
While Bitcoin is one of the most popular cryptocurrencies with the largest market cap in the world, there are certainly still a wide variety of other cryptocurrencies that are worth talking about such as altcoins or even meme coins.
Years back, there were only a few cryptocurrencies available and their main objective was to provide a cheap and rapid substitute to the US dollar for cross-border transactions. Today, on top of Bitcoin, there is a wide variety of other cryptocurrencies that are available in the market.
Depending on how they are created, developed, used, or even other criteria, there are at least seven different categories these digital currencies can be classified under.
Payment Coins
A payment coin is a cryptocurrency that uses its own blockchain and crypto coin as a mode of payment to transform the process of financial transactions. It is created as a result of a blockchain's capability to send and receive currency via the web in an instantaneous manner. It offers a safe and seamless way of making payments from any country. Furthermore, payment coins not only fulfill the threshold for being classified as virtual currencies, but they are also a good hedge against inflation, which fiat currencies are unable to achieve.
Examples: Bitcoin (BTC), Ripple (XRP), Litecoin (LTC), Stellar (XLM).
Meme or Joke Coins
A meme coin is a cryptocurrency that has been inspired by an online meme or one that has other interesting comical features. They are speculative in nature and were made only for amusement, with no clear objective or function in mind. With this, the coins tend to carry more risks and are generally more volatile as compared to other cryptocurrencies. Yet, they are surprisingly popular amongst many cryptocurrency investors and enthusiasts. Many of them also believe that meme or joke coins should be taken seriously.
Examples: Dogecoin (DOGE), Shiba Inu (SHIB), Dogelon Mars (ELON).
Utility Tokens
A utility token is a cryptocurrency that has a particular function case in an ecosystem. Acquiring the token will enable individuals to accomplish a specific operation on a network. A utility token is more versatile than a coin. It has value and worth, but it cannot be classified as money in the same way that a coin can. Unlike security tokens, utility tokens are not considered investments as they do not give their holders ownership of the company (even though they can increase in worth and give holders value in several other ways).
Examples: Basic Attention Token (BAT), Chainlink (LINK), Zilliqa (ZIL).
Exchange Tokens
An exchange token is a cryptocurrency that is unique to an exchange. Cryptocurrency exchanges may create their own tokens and frequently provide tokens to investors as benefits. Owners of exchange tokens, most often than not, get savings on transaction fees and additional perks. As a result, exchange-issued cryptocurrency tokens may be one of the more beneficial digital assets in the market. Many of those exchange tokens are aimed to boost an exchange's liquidity or to stimulate transaction activities.
Examples: Cronus (CRO), Binance Coin (BNB), KuCoin Token (KCS).
Stable Coins
A stable coin is a cryptocurrency that bases their price on a rather stable asset. Its value is intended to be linked to a cryptocurrency, fiat money, or commodity. Stablecoins have grown in popularity since they strive to combine the best of the two: the rapid processing and safety or confidentiality of cryptocurrency transactions, as well as the fluctuation-free and stable prices of fiat currencies. Considering the scale of their market and possible implications on the larger banking sectors, authorities have been scrutinizing stable coins for the past few years.
Examples: Tether (USTD), USD Coin (USDC), MakerDao(DAI).
GameFi Tokens
A GameFi token is a cryptocurrency that may be used to enjoy computer games that are backed by cryptocurrencies and NFTs that utilize blockchain technologies. GameFi applications allow players to have fun, and at the same time, earn cryptocurrency. Game users can gain early access to high-profile game projects' tokens or game items. Those tokens are intended to function as fully functional cryptocurrencies. Users may potentially translate in-game earnings into currencies on a variety of decentralized exchanges as a result of this. GameFi tokens are also subjected to the same risk and uncertainty as other cryptocurrencies that are not tied to a fiat currency.
Examples: Sandbox (SAND), Decentraland (MANA), Axie Infinity (AXS).
Security Token
A security token is a cryptocurrency that was designed with the intention of being used as an investment. Token owners often get to receive additional tokens in the form of dividends if the token's issuing business is making a profit in the market. Ownership rights of the firm will be granted to individuals who own the security token. Since the tokens are classified as securities, they are obliged to comply with federal securities and regulations (in the United States, security tokens must adhere to regulatory requirements such as Regulation D, Regulation A+, and Regulation S). Its ownership must be validated on the blockchain as well.
Examples: Siafunds (SF), Science Blockchain, Blockchain Capital (Bcap).
Governance Token
Acquiring governance tokens earns you a vote in the crypto space. A governance token may be issued by a DeFi project to provide stakeholders a say regarding subsequent decision-making. When major choices are made, such as raising or lowering gas prices, token owners vote, and those who possess more coins have more votes. If the group of currency owners has complete power, they may be referred to as a DAO, or decentralized autonomous organization. Every project's governance token rules are unique. Different approaches to the calculation are used to distribute them to stakeholders such as the original founders, investors, as well as their users.
Example: Maker (MKR), Compound (COMP), Uniswap (UNI).
Which Cryptocurrencies to Invest in?
Choosing what to invest in is completely up to one’s own taste and preferences. Yet, if you’re new to investing, you should certainly consider diversifying your portfolio instead of going all-in on just one type of cryptocurrency. While the nature of cryptocurrencies is speculative in nature, you should certainly do your due diligence instead of blindly following the flock.
When it comes to selecting cryptocurrencies for your investment portfolio, it's crucial to conduct thorough research and assess your risk tolerance. Start by understanding the fundamentals of each cryptocurrency, including its technology, use case, team, and community support. It's also important to keep an eye on market trends and news that can impact the value of these digital assets.
Disclaimer: This material is for information purposes only and does not constitute financial advice. Flipster makes no recommendations or guarantees in respect of any digital asset, product, or service. Trading digital assets and digital asset derivatives comes with significant risk of loss due to its high price volatility, and is not suitable for all investors.