There are currently more than 3,000 types of cryptocurrencies, each crypto in turn belongs to one of the three main categories: Altcoins, Tokens and Bitcoin.
In this article, we will explain the differences between cryptocurrencies. We will also see some of the most common subtypes used, such as 'stablecoins' and 'privacy coins'.
After reading this, you should have a good understanding of all the main types of crypto and be able to differentiate between them easily. Let us begin!
The three main types of Cryptocurrencies
Bitcoin
Bitcoin (BTC) was the first cryptocurrency to be created and is still the world's leading cryptocurrency today, with the largest market capitalization. Bitcoin is a global peer-to-peer electronic payment system, which allows parties to transact directly with each other without the need for an intermediary such as a bank.
The Bitcoin whitepaper, a document that summarizes how this revolutionary new currency works, was published in 2008, and thereafter the Bitcoin network was launched in 2009. Since its launch, the Bitcoin network has not experienced any downtime, allowing Anyone transferring value at any time and from anywhere.
Bitcoin could grow 43x to match the market capitalization of gold.
(1): All the money in the world: money in any form included in banks and other deposits, both bills and coins.
(2): Physical Money: Money in forms that can be used as a medium of exchange, generally bills, coins, and certain aid balances in banks.
The creator of Bitcoin goes under the pseudonym Satoshi Nakamoto, his true identity remains unknown to this day. It is also unclear whether Nakamoto represents a single person or a group of individuals who worked on the Bitcoin project.
Bitcoin is often considered as the digital investment alternative to both fiat currencies (fiat) and gold. This is because Bitcoin can be spent and saved like traditional money, but it is also a finite and scarce resource, therefore a good store of value just like gold.
Altcoins
The launch of Bitcoin and its "open source" in 2008 paved the way for the creation of thousands of other cryptocurrencies. These new coins have been called 'altcoins' or 'altcoins' in the sense that they are alternatives to Bitcoin.
While some altcoins serve a similar purpose to Bitcoin, other types of cryptocurrencies actually comprise a wide range of different uses. For example, Ethereum (ETH), the world's first programmable blockchain, enables developers to build, deploy decentralized applications (DApps) and smart contracts.
IOTA, for example, is specifically designed to be a new data transfer and transaction settlement platform for the machine economy and the Internet of Things (IoT).
IOTA also uses its own distributed LEDGER technology, which it has patented under the name Tangle.
Similarly, Litecoin (LTC) is a cryptocurrency and a global payment network, similar to that of Bitcoin. In fact, the creator of Litecoin, Charlie Lee claims that his intention was to make Litecoin a complementary cryptocurrency to Bitcoin.
Like Bitcoin, all altcoins are capable of operating independently on their own networks using distributed ledger technology, (DLT). The most famous and commonly used category of DLT is Blockchain technology, which was introduced to the world by Satoshi Nakamoto through Bitcoin. Although all currencies use DLT, the variations in the code behind each protocol is what gives altcoins their own unique attributes.
There are at least 856 altcoins in existence according to CoinMarketCap data, and the top 5 altcoins by market capitalization are Ethereum, Ripple (XRP), Bitcoin Cash (BCH), Litecoin, and EOS.IO (EOS).
Tokens
Unlike Bitcoin and Altcoins, Tokens cannot function independently from the network of another cryptocurrency. This means that they do not have their own underlying DLT or blockchain, but rather are built on top of the blockchain of an existing cryptocurrency.
Similarly, data from CoinMarketCap shows that there are at least 1,496 tokens, deployed on 24 cryptocurrency blockchain platforms. Some prominent examples of the different types of cryptocurrencies that host tokens can be the following:
- Ethereum - The Ethereum platform has by far the largest number of tokens deployed. The tokens that work on the Ethereum network are Basic Attention Token (BAT), Chainlink (LINK), Huobi Token (HT), and USDCoin (USDC); plus hundreds of other coins.
- Omni - Tether (USDT), the world's leading stablecoin and most traded cryptocurrency, is a token that is deployed on Omni, along with three other tokens.
- NEO - NEO is often referred to as the Chinese rival to Ethereum, and as a platform for smart contracts and DApps, it has many tokens deployed on it. The main examples of NEO tokens include the Nash Exchange (NEX) and Gas (GAS).
- TRON - As the leading platform for DApps, TRON has numerous tokens deployed on its network, including the BitTorrent Token (BTT), which can be used for faster downloads on the BitTorrent file sharing protocol.
The top 5 tokens according to market capitalization are: Tether, UNUS SED LEO, Chainlink, Huobi Token, and Maker, all of which are deployed on the Ethereum blockchain, apart from Tether that ranks first.
Tokens are much easier to create since you don't need to build a blockchain from scratch. You may have heard the phrase "tokenise the world", which refers to the ability of tokens to represent almost any asset.
This is thanks to the use of smart contracts, and we have already seen "tokenized" versions of stocks, commodities, fiat currency, other cryptocurrencies, properties and more. And we've most likely barely scratched the surface, as to what else can be "tokenized" in the world.
Common terms used to categorize Cryptocurrencies
Since we are on the topic of different types of cryptocurrencies, we can also look at some various subtypes that are likely to be found in the world of blockchain and crypto-trading.
Here are four commonly used terms to categorize cryptocurrencies that have specific characteristics:
- Privacy Coins - Cryptocurrencies that focus on providing private transactions, such as Monero, Zcash, and Dash.
- Stablecoins or Stablecoins - Cryptocurrencies that are tied to 'stable' assets such as fiat currencies to reduce price volatility drastically. Prime examples include Tether, Dai, USD Coin, and Paxos.
- Exchange tokens - Cryptocurrencies created by exchanges to be used mainly in their own trading platform and services. Top examples include the BINANCE Coin, Huobi Token, and KuCoin.
- Central Bank Digital Currencies (CBDC) - Cryptocurrencies created or backed by a central bank. The People's Bank of China (PBoC) is currently developing its digital yuan, and most countries are expected to digitize their national currencies in the future.
