The main types of cryptocurrency

Cryptocurrencies are decentralised digital currencies used for investments, governance, and payments. In slightly over a decade, the number of cryptocurrencies has jumped to over 21,000. They have become a popular asset class forboth retail and institutional investors. In this article, we will look at the several types of cryptocurrencies in the industry.

Stablecoins

Cryptocurrencies like Bitcoin and Ethereum have two main challenges. First, they are often extremely volatile, which makes it difficult for businesses to accept them as a payment option. Second, both centralised and decentralised exchanges face usability issues with fiat currencies.

Stablecoins are cryptocurrencies created to solve these challenges. In some cases, stablecoins like Tether and USD Coin get their value from being tied to fiat currencies like the US dollar and the euro.

Another type of decentralisedstablecoin uses a complex algorithm to keep its peg.Some of them, like the USDD and DAI, are overcollateralized, meaning that they are backed by a wide group of assets.

Most stablecoins are supposed to maintain a 1:1 ratio with the US dollar. However, in some cases, some coins like DEI and Terra USD have lost their peg, leading to substantial losses. The most popular stablecoins are Binance USD, Tether, USD Coin, and True USD, among others.

Layer-1 tokens

Layer-1 in the crypto industry means a blockchain project that provides infrastructure that developers can use to build on. Instead of building a web3 project from scratch, developers can build on top of a layer-1 blockchain.

Most layer-1 projects have their own tokens, which are used for governance and handling payments within the ecosystem. Some of the top Layer-1 blockchains are Ethereum, Solana, BNB Smart Chain, and Polkadot. Their tokens are ETH, SOL, BNB, and DOT.

In addition to layer-1 networks, there are layer-2 sidechains that help to reduce costs and increase the speeds of other smart contract projects. Some of the best-known layer-2 cryptocurrencies are Polygon, Immutable X, Loopring, and Optimism.

Utility tokens

Utility tokens are different cryptos that are used for specific purposes in blockchain projects. In most cases, these tokens are issued by developers during their Initial Coin Offerings (ICO).

Utility tokens serve specific purposes depending on their ecosystems. For example, storage tokens like Filecoin (FIL), Arweave (AR), and Storj (STORJ) are used to pay storage providers. Similarly, metaverse tokens like Smooth Love Potion (SLP) and Sandbox’s SAND are used to handle transactions in their ecosystems.

There are utility tokens in all Web3 industries. For example, Basic Attention Token (BAT) is used to pay users who use the Brave Browser. Exchange tokens like FTX Token (FTT), Huobi Token (HT), and KuCoin Token (KCS) are used to incentivize users.

Fan Tokens

A fan token is a type of cryptocurrency that is offered by a team, club, or sports association to provide more engagement with their teams. Holders of these tokens can vote on several activities within the teams, although most decisions are handled in a centralized manner.

At the time of writing, all fan tokens had a market cap of more than $400 million. Some of the top fan tokens are Santos, FC Porto, Manchester City, and the Argentine Football Association.

Peer-to-peer coins

Peer-to-peer payment cryptocurrency is a popular type of cryptocurrency. These coins use distributed ledger technology (DLT) to make decentralised payments possible. Some of the most popular coins in this group are Bitcoin, Litecoin, Bitcoin Cash, and Ravencoin.

Inside this category, there are privacy coins like Monero, Dash, and Decred. These coins use advanced encryption to prevent transactions from being tracked. Monero, for example, makes sure that the money you own is not linked to your public address.

Summary

The cryptocurrency industry is growing and evolving at the same time. It will continue evolving, and the types of coins will keep expanding. For example, meme coins like Shiba Inu and Dogecoin have gained a lot of traction among users in the past few years.