Cryptocurrencies have gained considerable popularity around the world but they are still in the early stages of mass adoption. Most people are investing in cryptocurrencies because they are a faster and more efficient way of making a transaction. This article introduces the readers to various types of cryptocurrencies and their utility.
Classification of Cryptocurrencies
There are many types of cryptocurrencies depending on their origin, features, and functionalities. Some of the types of cryptocurrencies are given as under:
- Tokens and Coins
- Utility Tokens
- Governance Tokens
- Yield Tokens
- Value Tokens
- Security Tokens
Tokens and Coins:
The central cryptocurrency issued by a blockchain is known as a coin. For example, the central currency of Ethereum is ETH but the project also houses other decentralized projects such as MATIC from Polygon. In this instance, the secondary cryptocurrency issued by Ethereum namely MATIC is a token.
Tokens are hosted on the same blockchain and they are compliant with the ecosystem of the core blockchain for example MATIC is an ERC20 Token.
Altcoin is a term in the crypto market that is used to refer to all other cryptocurrencies except Bitcoin. Some Bitcoin proponents argue that Bitcoin is a standalone project and not a generalized cryptocurrency Therefore, the term altcoin or alternative coins has gained popularity.
Stablecoins are cryptocurrencies that maintain their prices at a fixed price at all times. Usually, stablecoins are pegged to another asset class such as commodities, stocks, cryptocurrencies, or fiat currencies to maintain their overall value. Some stablecoin use algorithms to maintain their fixed per-unit price by controlling their total circulatory supply.
Utility tokens grant users the right to perform specified actions on a given blockchain or decentralized application. Utility token examples are BNB, and ETH which are used to pay for gas on the blockchain.
Governance tokens allow the holders to participate in the governance process of the blockchain or dApps. The holders get voting rights regarding various new proposals on the blockchain network. Examples of governance tokens are COMP, LIDO, AAVE, and Curve, etc.
Cryptocurrency holders can earn yield rewards by staking their tokens for a given time. In some cases, the blockchain may issue yield rewards in the form of yield tokens. They are popular in the yield farming process.
NFTs are non-fungible tokens meaning that every NFT is unique. NFTs are usually present in the form of audio, video, text, or various photo file formats. They represent digital ownership of the given file and are most common among artists.
They represent an object of value in the form of a token. Value tokens may be digital forms of artwork or music but they are also NFTs.
Security tokens are tokenized forms of stocks or securities. They are subjected to the securities laws of the country, where they are issued.
Cryptocurrencies have become a popular phenomenon and they are becoming more popular among the masses by the day. Investors can diversify their portfolios by investing in different types of cryptocurrencies and maximize their profit percentages while mitigating risks.
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