Types of Cryptocurrency: A Beginner's Guide

It's likely you have heard of Bitcoin and know that it’s that cryptocurrency that has been attracting more and more attention since its launch in 2009. But are all types of cryptocurrency in the developing industry similar to Bitcoin?

Hardly! There are now thousands of cryptocurrencies of different kinds, which can confuse anyone new to the crypto space.

So, in this article, we’ll take a look at the types of cryptocurrencies currently available on the crypto market to make the task easier for you. Essentially, cryptocurrencies are classified into two categories:

1. Coins
2. Tokens

Crypto tokens vs. Coins

What are tokens and what are coins? What's the difference between the two?

As highlighted above, cryptocurrencies can fall into two distinct groups: coins and tokens.

Sometimes people talk of coins when referring to tokens, or vice versa. This tendency is misleading and can make you fail to note that the two categories are dissimilar in many ways.

Let's have a look.

Coin vs. crypto token: What's a coin?

A coin is a cryptocurrency built on a standalone blockchain network. In simple terms, this is a cryptocurrency native to a given blockchain network. For example, Bitcoin is the native token on the Bitcoin network. Bitcoin has its own ticker — BTC — used for its identification on the market. The same goes for not only popular assets like Ethereum, Litecoin, or Ripple but all the coins and tokens as well.

Coins take on the role of real money (or fiat currencies like dollars or euros) and may be used in three ways:

• Value transfer – send or receive coins as money
• Store of value – you can hold money in the form of coins to use at a later time
• Payments – coins are used as a medium of exchange for goods and services

When exploring the market, you might come across the term ‘altcoins’, or alternative coins. These are all the currencies that aren’t Bitcoin, the first digital coin to ever appear.

Some altcoins can have other functions besides the ones listed above. For instance, Ether (ETH), the native cryptocurrency on the Ethereum network, is also used to interact with and fuel decentralized applications (or dApps). Cardano (ADA), and ETH, too, can be used in staking. Among other currencies with a wide range of functions are NEO (NEO), Dash (DASH), VeChain (VET), and more.

Coin vs. crypto token: What's a token?

A token is a cryptocurrency built on an existing blockchain network. As such, tokens are created using specifications available on a primary blockchain.

The best example is Ethereum's ERC-20 token standard that saw thousands of crypto tokens created during the 2017 boom in initial coin offering (ICO). Another way to issue tokens is via the increasingly popular security token offering (STO), commonly used today by developers and companies.

Depending on their primary functions on the market, tokens can be divided into different categories.

Examples of tokens

• Security tokens – tokens that function like the traditional securities where holders have shares in the blockchain project and anticipate financial profit from its growth.
• Utility tokens – a token created for a specific function on the blockchain. Users need such tokens to access the platform, interact with smart contracts and dApps, and so forth.
• Stablecoin – a token whose value is pegged to a stable currency like the US dollar. Its value is usually collateralized 1:1 against the fiat peg.
• Non-fungible tokens (NFTs) – tokens that represent unique digital objects such as artworks, pieces of land, pets, licenses, etc.

To learn more about the differences between the two types, check out our detailed guide on coins vs. tokens.

The Most Traded Cryptocurrencies

There are over 8000 cryptocurrencies listed on CoinMarketCap. Here's the list of cryptocurrencies that are most commonly used today.

• 1. Bitcoin
  Bitcoin is the "King'' of cryptocurrency. In 2021, Bitcoin's popularity has rocketed with the entry of big-name institutions and players like Tesla and Bridge Capital. It is the 'digital gold'' that could rival Gold as a global store of value. There will be 21 million BTC coins and its price is likely to increase amid rising demand.
• 2. Ethereum
  Ethereum is the second-largest cryptocurrency by market cap and the most popular smart contracts and dApps platform. The cryptocurrency is on the verge of transitioning from a proof-of-work to a proof-of-stake network.
• 3. Litecoin
  Litecoin is often seen as silver to Bitcoin's digital gold tag. Although it has slipped lower in market cap rankings, LTC remains one of the most popular coins for its fast and cheap transactions.
• 4. Ripple
  Ripple's problems with the SEC might impact XRP, but the cryptocurrency still attracts a lot of attention as a top 10 cryptocurrency.
• 5. Bitcoin Cash
  Bitcoin Cash forked from Bitcoin in 2017. It has failed to rally to Bitcoin's pace but is still popular within the crypto market.

The above cryptocurrencies are indeed among the most popular ones, however, there are coins and tokens that are also gaining momentum in 2021. These include Cardano (ADA), Binance Coin (BNB), Polkadot (DOT), Stellar (XLM), and ChainLink (LINK).

Different types of forks

In trying to understand cryptocurrencies and how they are created, you might need to understand what a fork is.

A fork in a blockchain is a change in the rules of a protocol. There are two main types of forks: hard forks and soft forks.

A cryptocurrency fork can be planned as part of the blockchain's development, with the community agreeing to upgrade at a given time.

If parties fail to reach a consensus and agree to new rules, a new chain with new cryptocurrency may emerge. Prominent examples include the 2017 Bitcoin hard fork that saw the creation of a rival chain called Bitcoin Cash. Another major fork in the crypto space was the 2015 split of Ethereum into Ethereum (ETH) and Ethereum Classic (ETC).

Another cryptocurrency fork is where a developer takes the code of an open-source cryptocurrency and modifies it to create a new cryptocurrency. Several such coins were "cloned" from existing blockchains.

Top cryptocurrencies created out of copying and modifying another cryptocurrency's source code include Litecoin, Dash, and the meme-coin Dogecoin, now supported by Elon Musk.

Messari Methodology. What is it?

With so many cryptocurrencies on the burgeoning crypto market, users can greatly benefit from a comprehensive system of data metrics that provides a way to classify crypto assets. That's what the Messari methodology is about.

The Messari library is comprised of more than 100 quantitative and over 15 qualitative metrics that can help a potential user analyze a cryptocurrency in terms of prices, coin supply, trading volume, and market capitalization. The Messari platform also explains how each metric works.

One of the metrics, for example, is the "Real 10 Volumes" one that shows the top crypto exchanges that report legitimate trading volume and do not manipulate data via practices like wash trading. In this case, you can use the metric to avoid exchanges deemed to provide "fake" trading volumes.

Conclusion

Since the launch of Bitcoin in 2009, a myriad of coins and tokens have been unveiled in the nascent crypto space. So if you are new to cryptocurrency, it's always a good thing to do your research before investing. You can learn more about cryptocurrencies on Swapzone, including how to easily swap your newly acquired tokens for one of the popular coins.