5 Types Of Cryptocurrencies - Understand The Differences
There are countless types of cryptocurrencies in existence, so navigating through them and understanding how they differ can be a tough challenge for many. In this article, we’ll highlight all the major variations and their distinctive features, to give you a comprehensive and clear overview.
Table of contents
The basis of comparison
There are countless ways to go about classifying cryptocurrencies. Today, we’ll use the most generally accepted categorization, which is basically based on the initial purpose a certain token was created for. That said, here’s the list of the major types of cryptocurrencies with examples, summarized in a short list:
- Store of Value cryptocurrencies: Bitcoin (BTC), Litecoin (LTC)
- Utility tokens: Ethereum (ETH), XRP
- Decentralized Finance (DeFi) tokens: Tether (USDT), Cardano (ADA)
- Non-Fungible Tokens (NFTs): CryptoPunks Collection (+ETH)
- Memecoins: Dogecoin (DOGE), Shiba Inu (SHIB)
Let’s take a look at each a little more in detail.
1st type: Store of Value cryptocurrencies
Store of Value cryptocurrencies is the oldest kind among all, with Bitcoin (BTC) being their most notable representative. As the name suggests, their main purpose is to retain and slowly gain value over a long period of time. In other words, contrary to inflationary fiat currencies (e.g. USD, EUR, CHF), Store of Value cryptos are often called deflationary assets. This usually is achieved by limited supply and an ever-increasing obtaining difficulty.
2nd type: Utility tokens
Utility tokens are cryptocurrency types designed for specific use cases. These could greatly vary, as there are utility tokens for pretty much anything one can imagine nowadays. That being said, the most popular example would be Ethereum (ETH), which was designed to run the Ethereum ecosystem via payments in ETH, and XRP, created to be sent and received internationally, significantly reducing traditional transfer fees.
3rd type: Decentralized Finance (DeFi) tokens
For those unfamiliar with the term, Decentralized Finance (DeFi) is the common name for crypto projects that allow users to gain some kind of yield from their token holdings mostly by locking them for a period of time. Tether (USDT) is a stablecoin, but also part of DeFi tokens, and just like with Cardano (ADA), you can lock (“stake”) your holdings in certain protocols in return for lucrative yields.
4th type: Non-Fungible Tokens (NFTs)
Non-Fungible Tokens are special, one-off cryptocurrencies usually associated with a piece of digital art that can’t be duplicated, copied, or tampered with. Collections, such as the CryptoPunks, can trade for incredibly high prices.
5th type: Memecoins
Memecoins are tokens without any intrinsic value or use case: they are quite literally created as a joke. However, as Dogecoin (DOGE) and Shiba Inu (SHIB) demonstrated in early 2021, they can still amass great followings and valuation.
Summary
There you have it! The five major types of cryptocurrencies. Each can be highly profitable, however, it’s really important that you understand them before choosing your investment. Anyhow, if you’d like all the above available supremely easily, and in an instant, visit the Swaps App, where we make buying virtually some of the popular cryptocurrencies a walk in the park.
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