What are the Different Types of Cryptocurrencies?
Since the introduction of the first cryptocurrency in 2009, the crypto ecosystem has exploded in size and popularity. That's left traders with a lot of options – and magnified the potential for trading missteps.
To help you trade more effectively, in this guide you can learn the different types of cryptocurrencies, wallets, and trading.
With Tradu you can trade crypto via CFDs.
How many types of cryptocurrencies are there?
There were over 22,000 types of cryptocurrencies in February 2023, according to CoinMarketCap. The market capitalisation of these equated to $1.11 trillion. It's worth noting that much of this market cap can be attributed to the two most popular coins, Bitcoin (42.6% of the total) and Ethereum (18.4%).
This high number of cryptocurrencies is a recent phenomenon. The market cap of crypto shot up during the pandemic, with the number of cryptocurrencies increasing in tow.
The difference between crypto coins and crypto tokens
Cryptocurrencies fall into two main types: coins and tokens. While some people use the terms interchangeably, this isn't quite accurate as they are two different things.
What are crypto coins?
Crypto coins are digital currencies. They're used in a similar way to fiat currencies (US dollar, pound sterling, Euro etc.) – to buy things, store value, or assign a price. That means they are owned by one person and held within a wallet.
Instead of being based on the creditworthiness of or general faith in a government (as is the case with fiat), they are based on their own blockchain with a specific protocol for that coin. That makes them complex to create, as they require plenty of expert coding and know-how to start up. Coins are distributed via mining – typically involving the solving of complex mathematical equations.
What are crypto tokens?
Crypto tokens are digital assets created and used for a specific project. That might mean representing an asset, providing digital security, allowing democratic decision making for a decentralised app, or as a means of signing and honouring digital agreements.
Tokens are based on a pre-existing blockchain, making them much easier to create. They are distributed through initial coin offerings (ICOs) and smart contracts and operate like agreements – the contract creator issues and ultimately owns the token, though you are allowed to use the token for whatever its purpose is via the contract terms.
Table graphic showing the differences between the two - see below
What are the main types of cryptocurrencies?
There are some key types of cryptocurrencies available to traders:
- Currencies – This includes the original cryptocurrency, Bitcoin, and so-called altcoins (a term used to describe any alternative crypto coin) like Ethereum. They are used to purchase things or as a store of value.
- Assets – This type of crypto includes stablecoins such as USDT and Gold GLC which derive their value from the price of a fiat currency or real-world asset, respectively. These are beneficial as they enable traders to keep their investments within the crypto ecosystem or within a platform, as opposed to selling crypto for real-world fiat currency.
- Utility tokens – Utility tokens, such as Sia Funds, Science Blockchain, and BCAP, are used to redeem a certain product or service provided by the issuer, such as digital storage, online gambling, or user rewards. That means that holders don't technically own their tokens, and the tokens do not hold any inherent value. If the issuer ceases operations, the utility token becomes worthless. As such, utility tokens are lightly regulated and not perceived as investment products.
- Security tokens – Security tokens are the crypto equivalent of financial securities, representing the ownership of a real-world financial security (like equity in a business). This type of crypto is therefore highly regulated, and also fungible – they can be sold or bought in any amount and remain interchangeable.
- Value tokens – Value tokens, also known as non-fungible tokens (NFTs), are one-of-a-kind digital items designed to be exchanged for fiat currency, cryptocurrency, or anything else of value. They include art, music, and other digital goods that derive their value from market sentiment.
- Meme coins – Created for comedy value, coins like Dogecoin and Shiba Inu are used as highly speculative assets, with prices pumped up by memes and social media traction. This lack of inherent value or purpose makes them highly risky investments.
The five most popular types of cryptocurrencies
Unsure which crypto is best for your portfolio? Some types of cryptocurrencies are much more popular than others. The five largest in terms of market cap at the time of writing (February 2023) are:
- Bitcoin (BTC) – Released in 2009, the original cryptocurrency is a peer-to-peer online currency designed to allow network users to pay one another for products and services without the need for middlemen or financial institutions. While it is designed as a currency, Bitcoin has been primarily used as a digital investment asset, with speculation driving most of the rollercoaster swings in its value over time. Learn more about what drives crypto prices.
- Ethereum (ETH) – The most popular type of altcoin, Ethereum was released in 2013. It was designed both as a cryptocurrency and a basis for crypto tokens. Ethereum is also used as a crypto asset, although it's closer to its overall goal of being a decentralised platform application, owing to the many tokens based off its blockchain technology.
- Tether (USDT) – This type of crypto coin is a stablecoin based on the value of the US dollar. Launched in 2014 and built on Bitcoin's blockchain, it is designed to be used as a currency, avoiding the price fluctuations experienced by Bitcoin. It does this by having each USDT coin backed by a real-world dollar held in reserve. It has also found value as a hedge against inflation, much like the fiat currency it tracks.
- Binance coin (BNB) – Binance coin is a cryptocurrency used on the Binance cryptocurrency exchange, which was launched in 2017. The coin is used to pay fees and make trades on the platform, with Binance conducting regular 'coin burns' (the destruction of coins) to keep prices relatively stable.
- USD Coin (USDC) – Released in 2018, USD coin is another popular type of stablecoin that works and is used in a very similar way to Tether – as a payment method and inflationary hedge.
What are the different types of crypto wallets?
When using cryptocurrencies or tokens, users use two pieces of information. The first is a private key. This long number (256 bits for Bitcoin) is held in the wallet and allows users to interact with the crypto they own that is held on the blockchain network. This interaction usually takes the form of sending coins to other users on the network, such as when purchasing a product or service.
The second piece of information is a public key, which is stored on the blockchain and works in a similar way to an email address, albeit completely anonymised. It gives other users an address to send crypto to, which they can then access using their private keys.
Private keys are not backed up anywhere. They are unique to the user and held on their crypto wallet. That means keeping your private keys safe is crucial, but there are a few different types of crypto wallet to choose from:
- Hardware wallets – A physical drive that can be connected to a PC. Secure, but can be lost or corrupted, though the use of chips, like those found in bank cards and biometric passports, is reducing the risk of the latter.
- Paper wallets – A physically printed QR code that is scanned to access the key. Secure, but often only available as a single-use code.
- Mobile wallets – Apps which store your private keys on your smartphone. Easy to access, but open to hacking or the loss of the phone.
- Web wallets – Server-based key storage, managed by the third-party wallet provider. Accessible, but open to service outages and hacking.
What are the different types of crypto trading?
There are plenty of different types of crypto trading, including well-worn trading strategies such as day trading, range trading, and high-frequency trading.
For in-depth guidance on how to trade crypto in a range of separate ways, visit our crypto trading strategy guide below.
View our strategy guide
What is the best type of cryptocurrency to buy?
We can't say which the best type of cryptocurrency to buy is. The crypto market is constantly changing, and every trader's goals are different. To know which is best for you, education, understanding, and experience are all key.
To understand crypto better and make more informed trades, start trading CFDs today with Tradu or view our crypto guides below.
The information in this article is for educational purposes only.