In this article we will explain the different types of cryptocurrency.

Readers should be aware that what constitutes a specific type of cryptocurrency can vary depending on the source.  Your correspondent has spent over an hour reading such sources and shall attempt to relay a consensus* of main types. There are sources which list individuals cryptos, instead of a broader category. This is also the reason that some categories have some of overlap; they do complement each other and can serve multiple purposes. So readers may well find a type missing, the author has had to make choices between a very large specified list and a readable comprised list.

We shall list a standard abbreviation, if any, before the full name of the category.

Coin or token

First to clarify; we have both crypto coins and crypto tokens: Coins are the basic network, on which tokens are built. They record transactions on the blockchain, which is a record stored in multiple computers, without centralisation. The primary purpose of a coin is to create a network, referred to as blockchain, they can also have other purposes, which differ per case. Tokens are far easier and cheaper to create and can serve many different goals; pretty much anything that can be done digitally could be based on a token. Both are commonly referred to as cryptocurrency. Should be noted that transaction in a token, or any other action, might require the payment in the underlying cryptocurrency.

 

Tokens are generally more monitored by the government, as it is far simpler to create and market a token. Some tokens also represent other assets, possibly real world fixed ones. Though this greatly differs per country and token.

Below we shall mostly state currency, to avoid excessive lengthy explanation about the minor differences or create misunderstanding: A coin can be used for the same purpose as a token. Exceptions are for when there really is a clear distinction or theoretical impossibility.

Types of cryptocurrency

Payment cryptocurrencies

Some currencies where created to enable swift, low cost, payments. There are a few reliability checks for this to be useful: Needs to be acceptable as a store of value, so not via unreliable trade platforms or extreme swings in value. Cost also has to be lower than physical storage of value (think physical money withdrawal and deposit rates, or the cost of traveling to deliver something). It helps if there is a fixed limited supply of the used currency, to avoid sudden drops in value (increased supply).

Stablecoins

These are supposed to mimic the value of an asset or more traditional currencies. A relatively large portion is supposed to mimic gold, USD or EUR. Some cryptos were created to increase privacy when paying, via specific protocols and mechanisms. It is important to realise that there are fully real risks involved, as value has not always kept up with the real asset, resulting in losses. Below we list some of the methods used to minimise risk, as can be seen, this relies heavily on software, which brings the risk of bugs or unintended action as the real world also plays a roll in the prices of underlying assets:

Currency covered; they aims for a 1:1 equality with the real asset, by closing contracts and having the assets in collateral.

Crypto-collaterised; those wishing to partake in them have to deposit more than they receive. As a result some of these are more valuable than their counterpart. This is to create a collateral reserve.

Algorithms; a piece of software automatically acts to maintain the value. Since algorithms are not 100% full proof at predicting human action, values have varied in the past.

Should be noted that stablecoins are called coins, but in reality are mostly tokens. The reason is likely linguistic as most serve to mimic actual currency or something else of real monetary value.

RWA Real-World Asset currencies

In case of real-world assets, the easiest and most common is exchange traded equities; stock, ETFs. But it can be applied to other assets, the only prerequisite for applicability is that ownership can be shared, for administrative purposes at minimum (even real estate can have multiple owners). The way it works is fairly straightforward, you create tokens to represent partial ownership and make them available for acquisition.

There is a big advantage to using these over regular exchanges; trading goes on 24/7, at a higher speed and potentially lower cost. Making it available for more people. Fractional ownership is also more possible than with traditional ownership.

DeFi Decentralised Finance currencies

One of the most used application of all crypto; the ability to bank, without any sort of bank. Instead smart contracts (an automated program) maintain loans and bridges supply and demand for other services. It allows those that do not have any access to banks to have insurances and loan money, even make a bit of interest.

A sub category is DEX Decentralised Exchange currencies; DEX currencies allow other cryptos to be traded without the need for a traditional centralised exchange, instead it uses

Layer 1 coins

A layer 1 coins is sometimes referred to as infrastructure; it serves as a base for tokens to be built on. Entire digital ecosystems can be built on this type of coin, their value greatly depends on the success of that ecosystem. Therefor it cannot be a token, as tokens are built on this type of coin.

This is the primary function of every single crypto coin, some also have other functions, or are used in another way.

AI Artificial Intelligence currencies

Some coins serve to improve not only other networks and functions, also how cryptos themselves are traded and processed; we call those AI currencies. At several places in this article we mention an automated process, it is likely that an AI currency plays a part in that process.

Communication currencies

Communication currencies focus on linking the real world with blockchain; they transfer data from outside of the ecosystem to within the ecosystem. Thereby enabling pieces of software to function faster/better or with more applications. This could play a big part in developing new global technologies, such as a faster and more reliable, though less centralised, next version of the internet.

Memecurrencies

This category is by far the most risky: Their entire value is based on the popularity of a digital image, it is incredibly rare for value to remain for long. They can be used to show a form of appreciation, by gifting in form of a tip, or create a hype. Long term use is rare.

NFT Non Fungible Tokens

These tokens serve as a proof of ownership, possibly with a chain of previous owners, to support the claim of ownership and validate the used platform. It is extremely rare for this to be crypto coin, because that would require building an entire network for a single asset; instead tokens are used, based on different coins. The ownership that is supported by this, can be a physical or digital asset.

CBDC Central Bank Digital Currency

Not a typical cryptocurrency, more of a special mention: This can only be issued by a central bank, the party that issues or approves regular money, and serves as a complement to that regular money. CBDC has to be fully managed by the central bank and should match the regular money in value; 1 unit of CBDC must have the exact same value as 1 unit of normal currency.

Not all countries issue them, as regular electronic payment infrastructure is considered sufficient to handle all payments made in the country`s currency.

Utility+Governance token

A common use for utility tokens is establishing who gets a vote in major decisions concerning the underlying infrastructure for the corresponding crypto. Or who has specific rights and access to something.

Ones with increased real world utility

Please note that, unlike above categories, this part is not a research based consensus. Much like other articles, it is simply the view of your correspondent, combined with underlying general research or fact checking. Here we examine the more real world, value of the above discussed types of digital assets.

Technological advancements

In terms of technological advancement a combination of layer 1 and AI currencies appears to have the better cards; by combining more efficient programs with digital infrastructure it becomes possible to build both a higher quality and faster digital ecosystem. This in turn can be used to built other things (the tokens, build on a coin`s blockchain).

Ease of living

Here we look at the more practical, in general, cryptos:

Decentralised Finance currencies are the most practical, for the short term, as they allow a broader range of people access to banking. This creates a pathway to even more services; regrettably few services are available for those that lack the ability to pay an invoice via bank transfer. This really is short term only, because banking only needs a internet connection and electricity: Satellites have begun delivering a connection to remote places, and solar panels can be both portable and sufficient for a few hours a day on average. Besides, the exact same prerequisites apply to crypto trading, so one can replace or complement the other.

Communication currencies: The world gathers ever more data, which needs to be transferred to a program for it to be useful. So the faster and more efficient this is done the better. We, as a species, also need to be able to work at any place on the planet and potentially not even on its surface, this requires better communication technology than is currently available en masse.

 

*Sources include big platforms and established financial institutions (including two governmental organisations). We do not have an affiliate program with any of them, so any form of advertising will be avoided in this article. A couple of categories are missing because of this; they contain a genuine company name or refer to such.