Different kinds of crypto are used for different functions and purposes. Here are the important differences between cryptocurrencies.

What are the different types of crypto: How can you distinguish between coins?

has revolutionised the financial landscape, offering an alternative to traditional fiat currency. As the crypto market continues to expand, it’s essential to grasp the nuances of various digital assets.

In this article, we’ll explore the different types of cryptocurrency, their features, and their use cases.

Coins vs. tokens: Unravelling the basics

Before diving into specific types, let’s clarify the fundamental distinction between coins and tokens.

Coins

Coins are native digital currencies that exist on their own dedicated blockchains. They are the fundamental units of value within their respective ecosystems.

For example, Bitcoin (BTC) is the original and most well-known cryptocurrency, and operates on its own blockchain. It serves as a decentralised store of value and a medium of exchange.

Ethereum (ETH) powers the Ethereum network. It not only acts as a digital currency but also fuels smart contracts and decentralised applications (apps built on the blockchain, rather than the internet).

When using a coin’s blockchain, transaction fees (such as mining rewards or gas fees) are denominated in that coin. For instance, Bitcoin miners earn BTC as their reward, while Ethereum gas fees are paid in ETH.

Coins operate within decentralised networks protected by multiple computers (nodes). These networks validate transactions and maintain the blockchain’s integrity.

Tokens

Tokens, on the other hand, rely on existing blockchains (like Ethereum) to function. They represent assets, utilities, or rights within a specific ecosystem. Tokens can be fungible (interchangeable) or non-fungible (unique).

For example, is a popular play-to-earn (P2E) game. In this game, players collect and battle adorable creatures called Axies.

The utility token associated with Axie Infinity is called Smooth Love Potion (SLP). Players can earn SLP by participating in battles, completing quests, and breeding Axies. And they can purchase SLP on exchanges.

SLP serves as a key resource within the Axie ecosystem. Players can use it to perform exclusive in-game tasks, such as breeding new Axies or acquiring rare items.

The value of SLP can fluctuate based on supply and demand dynamics, making it an interesting asset for both gamers and investors.

Other tokens

Another example is the token associated with , a decentralised exchange (DEX) protocol built on the Ethereum blockchain. It allows users to swap various cryptocurrencies in a peer-to-peer way.

The utility token associated with Uniswap is called UNI. UNI holders can participate in providing liquidity to Uniswap pools by depositing their tokens. In return, they earn a share of the trading fees generated by the platform.

UNI also serves as a governance token, allowing holders to propose and vote on protocol upgrades, fee adjustments, and other decisions.

Users who stake UNI tokens may receive additional rewards, such as UNI airdrops or access to exclusive features.

Another example is BAT (). The Brave browser ecosystem uses it to reward users. They also use it to pay content creators for engagement.

Different categories of cryptocurrencies

Utility Tokens

Utility tokens power decentralised applications (DApps) and grant access to specific services or features.

For example, Ethereum (ETH) is fuel for the Ethereum network, enabling smart contracts and DApps.

The Sandbox is a virtual metaverse where players can play, create, own, and govern their experiences. The utility token is . SAND allows users to purchase and own virtual land within the Sandbox metaverse. This land can be developed, customised, and monetised.

With SAND, players can create and publish their own games, experiences, and assets within the Sandbox world. The community actively participates in governing the metaverse through decentralised decision-making.

SAND is the primary currency for in-game transactions, including buying and selling virtual assets, participating in events, and collaborating with other creators.

Payment cryptocurrencies

These aim to replace traditional payment methods. For example, Bitcoin (BTC) is the original cryptocurrency, often referred to as “digital gold.” This works so well as a payment cryptocurrency that it is legal tender in El Salvador, and some other regions.

is a cryptocurrency designed for payment purposes.

Ripple is the company behind the XRP cryptocurrency. It operates a payment settlement system and currency exchange network that facilitates global transactions. XRP consistently ranks among the top 10 cryptocurrencies by market capitalisation.

Ripple aims to replace traditional systems like SWIFT by providing a better performing and more efficient settlement layer between major financial institutions.

The standard fee for conducting transactions on Ripple is set at 0.00001 XRP, significantly more competitive than the fees charged by banks for cross-border payments.

Stablecoins

Stablecoins maintain a constant / an expected stable value by being pegged to an external asset (usually the US dollar). An example is USD Coin (USDC).

USDC is a type of cryptocurrency that aims to maintain a 1:1 peg with the U.S. dollar. In other words, the value of one USDC coin is intended to be as close as possible to the value of one U.S. dollar.

USDC maintains this “expected” stability because it is fully backed by U.S. dollar assets. For every USDC in circulation, there is an equivalent amount of U.S. dollars held in reserve. These reserve assets are held in segregated accounts with regulated U.S. financial institutions, ensuring transparency and accountability.

Not the standard warning at the bottom of this article about the specific risks associated with stablecoins.

Exchange Tokens

These tokens are native to specific exchanges and offer benefits like reduced fees or voting rights. For example, Binance Coin is used within the Binance ecosystem.

Crypto.com has its native token called CRO (Cronos). CRO holders can earn higher rewards by staking the token on the platform, among other uses.

Central Bank Digital Currencies (CBDCs)

CBDCs are the digital version of a country’s national currency. They are issued by central banks. These are still in the experimental phase and there is a lot of controversy that surrounds them.

CBDCs allow central banks to more effectively implement monetary policies, including interest rate adjustments and quantitative easing (money printing to manipulate economic outcomes).

CBDCs make traceability easier, making it harder for illicit activities such as money laundering and tax evasion.

However, many normal citizens are very dubious of CBDCs. Because CBDC transactions are highly traceable, this could potentially compromise user privacy.

More or less, a government could take money away from a citizen by pressing a button, or "freeze" their accounts. CBDCs raise concerns about surveillance and government monitoring of financial activities.

Memecoins

Meme coins (like ) were created as a joke, however, amazingly, some of the biggest memecoins have become fully-fledged cryptos with buying power and utility.

Dogecoin (DOGE) is the oldest and memecoin at the time of writing in April 2024.

It was originally created as a joke in 2013 by creators Billy Markus and Jackson Palmer. Initially, they thought it would be fun to come up with a new coin just for themselves. However, Dogecoin gained unexpected popularity and became a significant part of the crypto landscape.

Another popular memecoin is (SHIB). Shiba Inu is often referred to as the “Dogecoin Killer.” It was launched in 2020. Like Dogecoin, Shiba Inu has a passionate community and has achieved a multi-billion dollar market capitalisation.

‘Meme coins’ (e.g. DOGE, SHIB, PEPE) are crypto-assets whose value is driven primarily by community interest and online trends.

Different types of crypto: Conclusion

Understanding the different types of cryptocurrency empowers you to navigate the dynamic crypto market.

Whether you’re a seasoned investor weaving in and out of crypto exchanges, or a curious newcomer, stay informed and you can explore the ever-evolving crypto landscape.