Types of cryptocurrencies

In 2021, more than 7,000 digital currencies were withdrawn. The total capitalization of the entire market exceeded $2.5 trillion. Approximately 20 large blockchain projects account for more than half of this amount.

Cryptocurrencies can perform different functions and not all of them are suitable for investment. Here are the main types of digital assets by way of application:

  • Payment systems in the form of cryptocurrencies. Such a currency is used for mutual settlements, and can also act as an investment object. These coins are decentralized, anonymous and easy to use. The most obvious examples are Bitcoin, Ethereum and others.
  • Internal tokens of cryptocurrency projects. This is the name of the digital financial instruments necessary for the development of smart contracts and their subsequent execution. Smart contract is a program that automates the execution of various transactions in full accordance with the established agreements. They are good because they provide a high level of reliability of operations without the participation of intermediaries. All that is required from users is to determine the terms of the transaction.
  • Internal tokens of trading platforms. These are digital coins created by cryptocurrency exchanges to pay for transactions and various services within their platforms. One example is BNB, which is the token of the Binance exchange. The same coin is used in the Binance Smart Chain blockchain.
  • Digital national currency (CBDC). This is a cryptocurrency, which is an analogue of the financial system of a separate state. An example is the digital yuan (DCEP). The task of such currencies is to ensure the control of the authorities over the financial flows in the country. The digital currency of Central Banks is as fast and convenient as conventional cryptocurrencies, but it is centrally managed and does not provide anonymity.

In addition to the method of application, cryptocurrencies can also be divided according to the methods of their creation.

For example:

  • Coins (regular cryptocurrencies). These are digital currencies that can be mined. They are created on the basis of a separate blockchain. They can be used to pay for various goods and services. Examples are Litecoin, Zcash, Ethereum.
  • Tokens. They are not mined by mining, but are issued immediately with full emission. These are digital assets with which the user receives a share in the project, or access to its services. They are also used to pay for services within the sites. Examples are BNB, BUSD, Dai, Uniswap.
  • Forks. Coins that were created as a result of a fork from the main blockchain. Forks can also be created by changing the code of the selected cryptocurrency. An example is Bitcoin Cash, Bitcoin Cold.

A fork is essentially a kind of coin, since it can also be mined and has its own blockchain.

Technology is constantly evolving and the list of new cryptocurrencies is growing. Projects that competently cover one or more needs of modern users become successful.

To understand which project is better to invest in, it is worth studying the Bitcoin vs Altcoins guide: 5 easy steps to determine the value of a cryptocurrency.