Cryptocurrencies are a hot topic in recent years. Whether it’s the new price of Bitcoin, the latest bull run, or bear market predictions, everyone would like to discover the next big thing in the crypto world. Since it’s hard to find the next Bitcoin or Ethereum, the best thing for a savvy investor would be to remain informed and learn more about the current cryptocurrency market.

The early days of Bitcoin are behind us, and there are nowadays many different types of cryptocurrency on the market. Cryptocurrencies can fulfill more functions than just standing in for digital assets, and we are going to explore the most common types that may interest new investors.

Payment Cryptocurrencies

Bitcoin, the first digital currency, was developed as a decentralized payment method that doesn’t require a bank. From the earliest days of Bitcoin, many projects with minor variations emerged based on its code.

We can think of Bitcoin and similar currencies as digital money, which uses a network of computers to verify transactions and account balances of its users. Digital coins have no additional features apart from those necessary to facilitate their use as payment methods.

Examples:

Bitcoin (BTC) is the first decentralized cryptocurrency and a global payment system. It laid the groundwork for the whole market and introduced the concept of a distributed public ledger with a network of computers used to validate transactions. In April 2021, it had a market cap of more than $1.1 trillion and an all-time high price of more than $64,500 per Bitcoin. Nowadays, you can trade it at all cryptocurrency exchanges, and using it is as simple as downloading a Bitcoin wallet on your Android smartphone.

Bitcoin Cash (BCH) is one of the different types of Bitcoin created through a hard fork. This means that it’s based on Bitcoin but took another development path. Because of the differences in the Bitcoin community, the project emerged as an alternative solution to Bitcoin’s scalability problem. Even though it’s not popular as Bitcoin, it is still one of the top cryptocurrencies on the market.

Litecoin (LTC) is a coin directly inspired by Bitcoin. The original concept was to create an alternative to BTC by having a larger supply, transactions that are uploaded to blockchain more often, and a different cryptographic algorithm.

Stablecoins

Stablecoins are a special cryptocurrency type that emerged as a response to market volatility. These projects have backing in other stable assets like fiat currency, precious metals such as gold, and even other cryptos in order to maintain their value. The main advantages of stablecoins are higher stability and fast and cheap money transfers worldwide.

Examples: 

Tether (USDT) is a stablecoin that’s directly linked to the value of the United States dollar. It’s one of the most used stablecoins, and it’s tied to Bitcoin, Ethereum, and several other blockchains.

USD Coin (USDC) is a project launched by companies Circle and Coinbase, a Nasdaq-listed cryptocurrency exchange, through the Center Consortium. Its value is, as the name suggests, pegged to that of the USD.

Privacy Coins

Among different types of digital currency, we also have privacy coins, which obscure the information you can see on the public ledger. These coins use various techniques to disguise transaction origins and destinations by combining multiple transactions to make the blockchain analysis more difficult.

Examples: 

Monero (XMR) is one of the best cryptocurrencies on the market for anonymity and privacy. First launched in 2014, Monero can hide sender, recipient, and even transaction info, while maintaining an egalitarian approach to mining.

Zcash (ZEC) allows users to choose if they want to remain anonymous or not. The coin implements the zero-knowledge proofs protocol to guarantee transaction validity and user privacy.

Infrastructure Cryptocurrencies or Blockchain Platforms

These types of cryptocurrency allow for the development of programs running on blockchain’s network of computers. They are also used to create decentralized finances, provide infrastructure for other cryptocurrencies, and connect multiple blockchains together. Projects and cryptocurrencies based on the blockchain network offer far more functionality than just online payments.

The only real limitations are the imagination and the programming capabilities of users developing decentralized applications (dApps) on the network. These Blockchain platforms have assets used as payment to support users providing computing power to the network.

Example: 

Ethereum (ETH) is one of the most revolutionary blockchain projects. Ethereum provides a platform on which users can build smart contracts, decentralized applications, and services. The project officially started in 2015 and still provides a platform for different cryptocurrencies to launch their initial coin offerings (ICO). Many cryptocurrencies are based on ERC-20 tokens, a standard for smart contracts on the Ethereum blockchain. It’s used to execute various functions and create non-fungible tokens (NFTs).

Polkadot (DOT), a project that includes Ethereum co-founder Dr. Gavin Wood, seeks to create a “new Internet platform” in Web 3.0. The project is competing with other similar solutions like Ethereum and EOSIO to deliver the best blockchain solution.

Service Cryptocurrencies or Utility Tokens

Utility tokens are types of cryptocurrencies that offer different ways to manage personal or company data. These projects work on merging blockchain with various fields like file storage, rendering, healthcare, advertisement, and many others. Some casinos that accept Bitcoin use utility tokens as well.

Examples:

Siacoin (SC) and Storj (STORJ) are similar projects that connect people with file storage needs with those willing to rent out their hard drives. While similar to other cloud storage solutions like Google or Amazon, these services provide a decentralized network of global computers. Users providing the hardware are rewarded for their assistance with cryptocurrency.

Basic Attention Token (BAT) stands out among utility tokens and other crypto types. BAT powers an advertising platform that’s blockchain-based and fairly rewards users for viewing ads and providing better value for the advertised company. Users interact with the advertisements through the Brave Browser and are rewarded for their attention with BAT.

Closing Thoughts

Knowing what types of cryptocurrency exist on the market will help you make better financial investments. There are plenty of projects that support different causes and are built on promising technology. While learning how to invest is a start, knowing how to choose the best cryptocurrency wallet is just as important if you want to become a serious crypto investor.

FAQ

  • What type of crypto is Bitcoin?

Bitcoin is a digital currency used for online payments. It’s decentralized, public, secure, and the first cryptocurrency that inspired many other projects, including Ethereum.

  • Why are there different types of cryptocurrency?

After the development of Bitcoin, plenty of other cryptocurrencies emerged, inspired by Satoshi Nakamoto’s white paper on Bitcoin. The underlying blockchain technology has a wide application that’s not just limited to financial transactions.

Nowadays, multiple cryptocurrencies provide solutions for privacy, stability, various services, and even infrastructure. Blockchain is still very much an untapped platform, on top of which there are limitless opportunities to build on.

With constant innovation and acceptance of the technology, new usage scenarios will emerge and create space for new cryptocurrencies to thrive.

  • What are the top 5 cryptocurrencies?

Currently, the top five cryptocurrencies are Bitcoin, Ether, Tether, Binance Coin, and Cardano. They all represent different types of cryptocurrency and are, apart from payments, used in fairly different scenarios.

  • Is it smart to buy Bitcoin?

Bitcoin’s value has grown from almost nothing to an all-time high of nearly $64,800 in 12 years. Despite significant downturns, Bitcoin hasn’t stopped growing since it was first introduced, and investing what you can afford can be worthwhile.

  • What is the most famous cryptocurrency?

The most famous and valuable cryptocurrency is Bitcoin (BTC). It currently makes up around 45% of the market.