Crypto is a complicated world, bitcoin is a thing, as is ethereum and dogecoin and an NFT, that much, you know. Yet you’ve also heard words like altcoin, token, memecoin, solana and “the metaverse” being banged out across subreddits and YouTube videos. And actually, your head’s been stewing. What do these words mean? What are the different types of cryptocurrencies, and what makes them different? Allow us to answer that briefly for you here.
Well? What categories of cryptocurrency are there?
There are many different cryptocurrencies. The most popular (measured by market cap, which is the global value of an asset) is bitcoin at the time of writing, and the second most popular is ethereum. All the other hundreds of crypto that people go on about, such as cardano and nano are grouped as altcoins, aka alternative coins. Essentially they’re less widely known. It might seem strange to only have two “mainstream” coins and the rest being referred to in the same way as an indie band from 2001 who peaked at #39 in the charts, but that’s because bitcoin is currently ten times more popular than the third most popular coin, binance coin (the native coin of the binance crypto exchange). So these altcoins are in fact relatively very niche.
But what about crypto tokens and the rest of it?
Slow down! We’re getting to it. So you have bitcoin, ethereum, and when you hear altcoin it can refer to any other crypto. You also have moonshots which are usually very new, super niche coins, worth fractions of a penny. They’re called moonshots because if you buy a few quid’s worth of one and it rockets (see what we did there) in value, you could easily see yourself turn that small sum you dropped into thousands of pounds.
So that’s the different types in terms of size. Bitcoin and ethereum, then altcoins, then moonshots (which are the smaller altcoins that people are hoping will become a much bigger altcoin). However, beyond all of this, there are different types of crypto based on their functions.
There are crypto coins (within these you have slightly different types), crypto tokens (again, there’s a few types), NFT-supporting coins (like algorand, which has a platform people can make NFTs on), stablecoins (such as tether), and memecoins (the most popular being doge) among others. They all have different primary functions, but all of them use and are created on a blockchain of some sort, whether they’re the native coin of a blockchain like the coin ether is with ethereum, or not as with the token shiba inu, which was built using ethereum.
Right, let’s go through these one by one. What is a cryptocoin?
Sure, so cryptocoin is exactly as it suggests. It’s a coin like a 50p is a coin. The intended use is as a currency. It is a digital coin that you can use to transfer money and buy goods. It’s the original use of crypto, and it’s what bitcoin is all about, which is why often you’ll find cryptocoin used as an overarching term, interchanged with cryptocurrency or crypto asset. Now that there are many more forms of crypto out there, it causes confusion (hence this article actually). BTC (bitcoin) is similar to coins like SOL (which is the native coin of the solana blockchain) and ADA (of cardano), the difference being the latter two have slightly different systems that are designed to make them quicker and more environmentally friendly.
Now before you say “but 50p is always 50p but bitcoin rises and falls in value all the time” 50p is indeed 50p, but not relative to 50 cents, or 75 yen – they’re all different fiat coins, and the exchange rates change depending on the country’s economy among many other things. Same in crypto. That’s cryptocoins done.
So what are tokens?
Tokens are generally there to serve a function that helps crypto (at large) do a little more than just send and receive digital money. Again, you have a few different types. We’ve got an explainer on crypto tokens here, but in brief, you get stablecoins which are meant to keep at the same value as a fiat currency like a US dollar. They’re useful if people want money in their crypto wallet but don’t want to risk it plummeting at that point in time. They can take like a grand of their Bitcoin, swap it into Tether (for example) and then your money will track more or less at the same price as a dollar, at least in theory – there can be times where stablecoins dip in value too, it’s just less likely.
You also have platform tokens, which basically allow you to do something on a blockchain. UniSwap is a very popular one. You’d use it to exchange different tokens on ethereum, without using centralised exchanges such as Binance and kraken. People like this because the initial point of crypto was to have everything decentralised, and the token allows that to happen with tokens, and not just coins that have their own blockchain. There’s also memecoins which are banter-led tokens made for a laugh that have value because people are just like, “yeah, I’ll buy a dollar worth of a coin with the same name as Elon Musk’s dog” (that’s floki inu, by the way) and then the value just goes up and up for a while.
What's DiFi crypto?
You also have DeFi crypto, such as Avalanche’s AVAX coin. These are pretty similar to platform tokens, in that they serve a specific purpose, but they are all within the realm of DeFi (decentralised finance) – Avalanche is just one example. The Avalanche platform itself allows you to build decentralised applications and programme smart contracts, and on that platform AVAXis used by people when staking, to pay transaction fees, and for rewards.
So many types of cryptocurrency are tokens, in essence. They can be stablecoins like tether, platform coins like UniSwap, or memecoins like dogecoin (these function like cryptocoins but they’re usually tokens as they have limited features and aren’t built on their own blockchain).
Crypto is expanding rapidly though, so there’s often new assets that are a little unique, like loopring which is a token made on ethereum, but the array of features mean it’s basically a platform of its own that sits on top of the ethereum blockchain. Loopring refers to itself as a token but also “an open-sourced, audited, and non-custodial exchange protocol.”
What other coins are catching people's attention these days?
The other types of coin that are catching people’s attention at the moment are metaverse coins like Decentraland (MANA), which are just the native coins within different metaverses (MANA is the coin in Decentraland, that people use to buy things for example). The other is NFTs, which are a form of crypto too. You might know what these are, but put simply they’re the crypto version of objects like art that are unique and therefore the value is a little more abstract, in the same way that one painting isn’t worth the same as another unless people bid on it. There’s more to NFTs than art really, as it’s more about owning any digital asset from tweets to the masters for a song. Anything you can store digitally.
There’s other coins that don’t neatly fit these categories, and there’ll no doubt be different categories that emerge in the future, but that’s the nature of crypto at the moment – it’s early doors, it’s still rapidly being established. It’s confusing, but for the geeks in the know, it’s also kinda very exciting.
Speak to a Financial Conduct Authority-registered financial adviser before taking financial advice, and think carefully before making any decision.