What are the types of cryptocurrencies? Analysis for beginners

Today, there are There are about 18 thousand cryptocurrencies, and it may not be easy for a novice crypto investor to navigate in them with such a variety. We help you figure out which types cryptocurrencies exist, how they differ from each other, and how they are used.

Coins & Tokens

With all the diversity cryptocurrencies can be divided into two main types – coins (aka coins) and tokens. The principal difference between them is the presence of own blockchain. Coins are created as part of a unique blockchain and can function independently of the world around them within their own blockchain networks. Their emission occurs due to the generation and addition to the distributed register of new blocks (mining or minting) and in most cases represents is a decentralized process.

Tokens, on the other hand, are created on on the basis of an already existing blockchain in which information about them is recorded, and cannot (unlike coins) exist autonomously. In order to access them, it is common to Special software is used, and they are managed using smart contracts. Emission tokens are carried out by issuing a certain number of tokens by the development team of this crypto project and therefore has a centralized nature. In contrast to coins, the emission of which takes place gradually, the issuance of tokens can be carried out all at once and completely.

Tokens are intended for performing certain functions and depending on this, they are divided into different types (we'll talk about it in detail below). They are often issued to raise funds to develop the project or ensure its operability. A lot of people even think tokens are not a cryptocurrency, but a digital analogue of securities, which acts as a certificate, confirming the holder's rights to certain objects of property.

Ability to issue tokens has opened up new opportunities for crypto investors for almost any asset, providing them with access to the world of traditional financial instruments. Tokenization securities, commodities, works of art, real estate, fiat And cryptocurrencies have become a kind of revolution for the field of finance.

Bitcoin and altcoins

Among cryptocurrencies with native blockchains are usually singled out in a separate category of bitcoin (some even recognize its special status as an asset outside the categories). Oldest Cryptocurrency is not just a global peer-to-peer electronic payment system, but is still the leader among all cryptocurrencies in terms of the market Capitalization. Many see it as an alternative to fiat currencies and Gold.

All Other Coins are collectively called altcoins, since each of them appeared as An alternative to the first cryptocurrency. Some of the altcoins are similar in their design bitcoin (e.g., LiteCoin, which its creators are called an analogue of military-technical cooperation), others are focused on the creation of new tools and (the most striking example is ether, the coin of the Ethereum blockchain with its smart contracts and support for decentralized applications). Quite often altcoin developers take the open source code of the Bitcoin blockchain as a basis and refine it in an effort to increase the speed of transactions and optimize the process new blocks, provide the ability to place smart blocks on the blockchain contracts, various applications and services. It is the variations in the source code of the protocol blockchains make each of the altcoins a unique digital product.

Coins Privacy policy

Coins are worth mentioning separately Privacy Coins — cryptocurrencies with their own blockchain, which provide their owners with a large The degree of anonymity and confidentiality compared to regular coins. For This is why their code includes mechanisms that allow them to hide the addresses of wallets and prevent their identification, often using a combination of methods, including combining and mixing coins from different users before sending them to the manners of a crypto mixer. It should be remembered that in a number of jurisdictions, the use of coins privacy is automatically perceived as a sign of illegal activities such as money laundering, tax evasion, financing terrorism, etc.

Examples: Secret Network, Monero (MNR), Zcash (ZEC), Dash (DASH), Horizen (ZEN).

Token Typology

Tokens have much more varieties compared to coins. Among them, there are two main ones security tokens | utility tokens. The first ones represent is a digital analogue of securities certifying the ownership of the or another asset (a share in a company, real estate, precious metals, etc.). The latter act as an analogue of a certificate confirming the holder's right to a particular or other service, product, discount or other privilege, the opportunity to participate in the voting in a decentralized autonomous organization or pay Within each of these categories, in turn, A number of varieties can be distinguished.

Stablecoins

Stablecoins are a type security tokens, the rate of which is tied to the value of a particular tangible one of the fiat currencies, gold, oil, and so on. As can be understood from the their names (literally meaning "stablecoin"), stablecoins have been are designed to solve the problem of high volatility that is common to all cryptocurrencies.

It is assumed that A stablecoin must be backed by a corresponding real-world asset. For example, the creators of the one of the most well-known USDT stablecoins, the price of which pegged to the US dollar at a rate of 1:1, claim that 100% of the tokens issued by them are backed by fiat foreign exchange reserves (although this point has been raised more than once questionable). And the price of the Paxos Gold token is pegged to the value of one troy ounce of gold bullion by London Good Delivery held in specialized repositories.

Stablecoins are used, in particular, by traders to fix profits in them, without fearing that it will depreciate due to sudden fluctuations in the exchange rate. They also include interested investors who need to transfer fiat funds to cryptocurrency with minimal risks.

Examples: Tether (USDT), USD Coin (USDC), TrueUSD (TUSD), Paxos Standard (PAX), Gemini Dollar (GUSD), Bitcoin Air (USDAP).

Secured Raw Materials: Tether Gold (XAUT), DigixGlobal (DGX), Paxos Gold (PAXG).

Stock Tokens

Exchange tokens are utility tokens tokens issued by crypto exchanges for use within their ecosystem for payment for services, as well as an investment asset for hedging risks in case the market falls. Holders of exchange tokens also receive bonuses and privileges when working with exchange-traded instruments and products.

Examples: Binance Coin (BNB), Huobi Token (HT), KuCoin Shares (KCS), Bibox Token (BIX).

DeFi Tokens

DeFi Tokens ensure the functioning of decentralized finance platforms. They're created based on the existing blockchain to support the internal economy of the service. DeFi token holders can use them to earn or receive certain goods or services.

Examples: Chainlink (LINK), Uniswap (UNI), Dai (DAI).

NFT

Non-fungible tokens (NFTs) are digital Certificates of ownership of unique assets such as works art or collectibles. Such a token is a digital an avatar of a material object, as if transferring its electronic copy to the blockchain. At the same time, each NFT is unique, that is, it can only exist in a single copy — unlike traditional cryptocurrencies like Bitcoin, which all coins are the same and interchangeable. Most often, NFTs are created in the form of digital images, but can also take other forms, representing various assets – photos, videos, and audio files, GIFs, memes, etc. Initially, they became a way for creators to make money digital content, and today they are actively used by celebrities to monetizing its popularity by releasing its own collections and attracting customers at the expense of fame. NFTs can be sold both at a fixed price and in an auction format on specialized online platforms. The purchase of an NFT is recorded in the blockchain with Specifying the unique identifier and value of the object.

Examples: Bored Ape Yacht Club, CryptoPunk, MetaPurse.

Tokens Management

Governance tokens give holders of the right to vote in the adoption of collective decisions by the participants of a particular or another project or network. The more tokens a user has, the more significant his voice. This mechanism is used, for example, by decentralized autonomous organization (DAI).

Examples: Aave (AAVE), Cake (CAKE), Biswap (BSW), DXdao (DXD).

ICO Tokens

ICO tokens are issued cryptocurrency projects to attract investments at the start (from Initial Coin Offering. Distributing them to participants project, its team thereby accumulates funds for further development and development. As a rule, ICO tokens are subsequently can be exchanged for coins of the main cryptocurrency of the project.

Wrapped Tokens

Wrapped A token is a copy of an already existing cryptocurrency issued on another blockchain. Wrapped Tokens are issued against the collateral of the original asset at a ratio of 1:1 and are pegged to the its price. They are called "wrapped" because the original coin is kind of crazy into a digital "wrapper" that allows you to use a copy of it on another network. This is allows you to expand the circulation of this cryptocurrency and trade it in other blockchains or decentralized crypto exchanges that do not support the original. Most A well-known example is the WBTC token (Wrapped Bitcoin) used on the Ethereum network.

There is also a mention cross-chain bridges created by teams of different blockchains to issue in their network of wrapped tokens of other cryptocurrencies. These include, for example, Binance Bridge, which allows you to work with a number of popular cryptocurrencies (BTC, ETH, XRP, USDT, BCH, DOT) on the BNB Chain network, as well as the Avalanche Bridge, combining the Avalanche and Ethereum networks, and Wormhole, which integrates the Solana blockchain with Ethereum, Terra, Avalanche, Oasis, Binance Smart Chain and Polygon.

Examples: WBTC, WETH, renDOGE.