Cryptocurrency has been around for quite some time now. In fact, Bitcoin was created back in 2009. But only recently has this technology become mainstream. How much do you know about cryptocurrency?
You might have heard of Bitcoin or Ethereum. But did you know that there are more than 18,000 other types of cryptocurrencies? Why are there so many cryptocurrencies and what makes them different from each other?
This article provides a simple overview of the main types of cryptocurrencies that exist today. Understanding why so many cryptocurrencies exist can prove incredibly helpful, especially if you’re considering investing in these assets.
Types of Cryptocurrency
1. Digital Money
This class of cryptocurrencies primarily functions as digital money superior to local fiat currency. The Bitcoin cryptocurrency particularly fits this description as it allows for cross-border transfers of large value. Bitcoin is generally accepted in most countries and has other unique properties that make it appealing to investors.
For instance, the cryptocurrency’s limited supply and its economic model make it likely that the price will only go up in the long term. This particular attribute makes bitcoin viable as a superior form of money (digital), as it is not susceptible to the inflationary properties that have plagued fiat currencies for decades.
2. Infrastructure Coins
Infrastructure coins simply refer to cryptocurrencies that underpin a blockchain platform. These blockchains, such as Ethereum and Solana, support the creation of decentralized applications (dApps) that use smart contracts.
However, users must pay transaction fees (also called gas fees) to access these apps. Infrastructure coins serve as money for users to pay these fees. Additionally, they could serve as a unit of account for other products designed for network users.
Popular infrastructure coins include Ether (ETH), Solana (SOL), BNB Chain (BNB), and Terra (LUNA).
As the name suggests, stablecoins are “stable” cryptocurrencies. They provide stability through underlying assets such as fiat currencies, gold, silver, oil, etc. Most traditional stablecoins such as peg their rates on a single fiat currency such as the US Dollar, Euro, or British Pound. However, algorithmic stablecoins such as TerraUSD (UST) are built on the Terra network as their rate is pegged to the Terra (LUNA) cryptocurrency.
4. Utility and Governance Tokens
Remember the apps mentioned earlier? Certain apps support decentralized financial transactions, non-fungible tokens, and games. These applications may also introduce their own crypto tokens to allow users to access certain features or even vote on proposals to improve the protocol. These crypto tokens are thus classified as utility and governance tokens.
Popular examples of utility and governance assets often covered in cryptocurrency news include Compound Finance (COMP), Pancakeswap (CAKE), Raydium (RAY), etc.
Memecoin refers to any cryptocurrency created mainly for fun and speculation. They typically offer little utility other than enriching early participants, and in a few cases leading to the formation of communities that share similar goals. This class of cryptocurrencies has become increasingly popular in recent times, buoyed by the adoption of the earliest meme coin, Dogecoin. Other popular meme coins include Shiba Inu (SHIB), Floki Inu (Floki), and Samoyedcoin (SAMO).
In conclusion, there are five main types of cryptocurrencies: digital money, infrastructure coins, stablecoin, utility and governance assets, and meme coins. Each type offers different benefits and characteristics.
Understanding the categories of many cryptocurrencies that exist equips you better as an investor. Although many new types may emerge in the future, these ones will likely remain the foundational assets that investors hold in their portfolios.
Read also: The Importance Of Clothing Labels