The cryptocurrency landscape may seem difficult to make sense of at first. There are tons of blockchain projects out there and for a beginner choosing one or a few of them for investing may feel like an impossible task.
Therefore, we would like to lay out the basics regarding the types of cryptocurrencies out there. Categorizing them based on their objective makes the most sense. So you’ll see that not everything is actually competing with Bitcoin to become the next alternative to cash.
Bitcoin is the first cryptocurrency ever, created by someone called Satoshi Nakamoto. His ingenious idea resulted in a digital currency running on blockchain. And the use-case is just fitting to this category.
A digital currency with the intention to be used as a form of payment is probably the most common of them all. By market capitalization, 5 of the TOP 10 digital currencies are aiming to do just that.
So, there are clearly others like Bitcoin. The most notable payment coins include:
- Bitcoin Cash
- Bitcoin SV
- Dash (Short for digital cash)
Of course, the father of cryptocurrencies. Lately, Bitcoin has been moving further away from the ambition of becoming an actual way of transferring value quickly. The reasons lie with its long transaction times and high fees during times of network congestion.
The long talk about Bitcoin becoming a store of value is now in the process of becoming a reality. But mentioning it in this is still necessary, as it was the reason for the creation of it.
Altogether, there will only be 21 million Bitcoins in total after all the mining is done. This kind of scarcity can considerably drive up the value of a single BTC.
The first of the bunch to follow Bitcoin. Created in 2011 by a former Google employee Charlie Lee, it is a little lighter and faster than its predecessor. Although it has not managed to surpass Bitcoin in either market cap nor popularity, it has been an ever-present figure nearby the top of the pyramid.
Many see Litecoin as a testing ground for Bitcoin updates, as it runs on similar mechanics and tends to roll out new features with more ease.
In 2017, a hard fork resulted in the inception of this digital currency. Instead of 1 MB, Bitcoin Cash has a different block size – 8 MB. This helps to ensure faster transaction times and better throughput. In turn, this also lowers the transaction fees.
However, vehement arguments between the supporters of the two have tried to say that each is the “original Bitcoin”.
Today, everyone accepts Bitcoin Cash as just another Bitcoin fork, the only difference being that it has not fallen through the cracks. A constant performer, BCH has remained near the TOP 5.
Bitcoin SV is another hard for of Bitcoin. SV stands for Satoshi’s vision. Many were anticipating a quick downfall for BSV because of its creator’s declarations about him, Craig Wright, being the actual Satoshi Nakamoto. Some trials later, all this proved to be nothing more than a disillusioned man or a failed con-artist at best.
However, BSV is still up and running. And it stands out as one of the better performers on the market.
Besides Litecoin and 3 different versions of Bitcoin, we also have Dash. The project started out as a privacy coin in 2014. The name back then was Darkcoin.
A little later, some weak sides were found in the privacy part. The system is pretty simple to hide the trails of transactions but they are still traceable to an extent.
So they moved on to rebrand Dash to a medium of daily transactions. As nobody in the space has really achieved becoming one, neither has Dash. But they are, to this day, one of the cryptocurrencies with a considerable market cap.
These are also known as blockchain economies. Some of the more famous examples include Ethereum, NEO, Tron and Vechain.
Blockchain platforms create an opportunity for developers to make their own decentralized applications that run on that platform. So the platforms have the necessary structure that others can utilize for their own gain.
The most prominent features, though, is smart contracts, that allow payments or transaction initiated only when certain pre-defined conditions are met.
How are platform currencies profiting from usage?
Let’s take a simple example. MyStory, a dApp developed by DNV GL, runs on the Vechain blockchain. The app is used for supply chain management and providing information to the end-customers on the app when scanning a chip or QR code.
However, all the information or data points stored on the blockchain need transactions for writing them. In turn, every transaction requires a payment in the native platform currency.
So the economics of such platform currencies differ from regular payment coins. The value depends on the overall network usage.
Do the Apps have their own tokens?
They may have but don’t have to. There is a lot of uncertainty regarding the value and need for many of the tokens. Often times, they were just used as a way to launch an initial coin offering. But that does not apply to all projects, of course.
Tokens may come with their own benefits depending on the project.
On the other hand, some dApps do not have their own tokens. A customer may be able to pay for the service in FIAT and the service provider takes care of covering the transaction costs on the blockchain.
Most popular platform currencies
The first of its kind, Ethereum has a huge developer-base. The Ethereum blockchain made smart contracts possible. Most of the dApps are running on this blockchain.
All the transactions are paid for in Ethereum, meaning there is a possibility for a rise in demand in the future, when more of these projects start to bring in customers of their own.
At the same time, Ethereum’s decentralized nature means that removing the weak points of the project (low throughput) takes more time, as reaching a consensus on the possible solution takes that much more time.
At one point, Ethereum also forked into Ethereum Classic. The community had a disagreement over reversing some mailicious transactions, so some of it parted ways. Ethereum Classic, though, remains obscure compared to the original Ethereum blockchain.
The VechainThor blockchain has its focus on enterprise clients. That means they first turned to the market to understand the needs and started the development process only after that, finding better ways of making smart contracts available for enterprise use.
The initial code bases largely on Ethereum but over time, the gap is only widening. Vechain’s government structure introduces 101 Authority Nodes and a Steering Committee, which allow to bring about necessary changes to the blockchain to solve problems on the go with eyecatching swiftness.
Each transaction requires a gas payment in the form of VTHO, which is the secondary token on the blockchain.
Vechain’s client list includes behemoths such as Bayer, DNV GL, BMW, etc.
A Chinese blockchain platform that started out as Antshares and has rebranded since. At one point, NEO was touted as the Chinese Ethereum. The focus on smart contracts while being early in the game garnered a lot of attention.
The lead dev Erik Zhang has said that one of the strongest assets is having more developer-friendly smart contract structures that do not use an intermediary.
Friendliness manifests itself in the way of the possibility to use common programming languages like Java. Ethereum has its own language that needs specific knowledge and extra learning.
Tron is probably mostly known for its flamboyant founder Justin Sun. His marketing gimmicks have brought great attention to the projects time and again.
The platform’s main focus is on bringing media and entertainment apps to a decentralized environment. The reason would be to eliminate a middle man from the creator-to-consumer journey.
A decentralized platform would act as distributed storage facility where creators can upload their content to and end-consumers can access it directly.
Therefore, consumers would be paying to the creators while the owners would only have to pay for the hosting service.
The TRON token TRX is used by consumers to pay for the service. Therefore, an increasing use of the platform also brings more value to the token.
Another decentralized public blockchain. Cardano currently sits in the TOP 10 in cryptocurrency markets with a considerable market cap.
The secure proof-of-stake algorithm provides the possibility of lesser energy consumption requirements. It also contributes to alleviating the common problem with scalability.
The high position in cryptocurrency markets shows the big support the projects gets, although it still has not rolled out its mainnet.
What is the reason behind the success? Probably the project’s strong scientific foundations. The CEO, Charles Hoskinson, is a co-founder of the Ethereum blockchain. He has a background in mathematics and computer analytics which is now being utilized to drive forward the Cardano (ADA) blockchain.
Next on our types of cryptocurrencies list is privacy coins. These cryptocurrencies allow to transfer funds without anyone being able to track the origins.
Only the sender and the receiver know the amount of the transaction. So a third party cannot see crucial information regarding the transaction, nor any account balances.
Privacy coins are largely touted for something for the black market. In reality, the ability to hide balances may come handy. For example, if you transfer 0.1 BTC from your wallet to your friend’s, he will see where the transaction came from and can therefore determine the wallet’s overall balance.
When looking at the different types of cryptocurrency projects, Monero is almost synonymous with the privacy coin category.
It has long proven to be a reliable, secure and untraceable technology. You can manage your own funds without having to fear that anyone knows where or how much you are storing away.
While many coins offer a secondary layer of security and untraceability, Monero is using this at its core. Its default settings include obfuscating the sending and receiving addresses.
This project launched in 2016 as a hard fork of Bitcoin. Now, it has developed into one of the most prominent altcoins with to be used as secure money.
ZCash is one of the aforementioned projects with an optional layer providing untraceability. Private addresses start with a “z” and transparent addresses start with a “t”.
A z-to-z transaction is still visible on the public blockchain but the transferred amount is not. Utilizing zero-knowledge proofs makes this concept possible.
Another interesting feature is the possibility of disclosing the contents of a z-address to a certain third party you trust. Sharing “view keys” makes it possible for auditors to check what is actually going on in an otherwise private account.
Regular transactions between two transparent addresses work just like with Bitcoin. Nothing is hidden and everything readily available for the public on the blockchain.
PIVX stands for Private Instant Verified Transactions. As the name and type of cryptocurrency we are putting it under suggest, it’s another private coin.
Originally a fork of DASH, PIVX is trying to become a similar household name in the privacy sphere while utilizing similar transaction times and low fees.
The main difference between PIVX and DASH, besides the privacy part, is the consensus mechanism. PIVX uses Proof-of-Stake rather than Proof-of-Work.
This is what we referred to in the Blockchain Cryptos section. Utility tokens are the native currencies to dApps. While the transactions are paid in the currency of the blockchain, services are paid using these utility tokens.
Most of the tokens are ERC20, meaning they run on the Ethereum blockchain. As more and more platforms are springing up, each with its own focus and scope, the token structure is also widening.
It is important to note that utility tokens can always be held in wallets that support the native blockchain. For example, all ERC20 tokens can be transferred to different Ethereum wallets.
Some examples of utility tokens are:
Golem (GNT). Used to pay for renting computing power on the Golem network.
Funfair (FUN). Created on Ethereum but transferred to Vechain. Used to pay for gaming activities.
Trading is one of the most common form of making money with cryptocurrencies. And stablecoins are an important asset to any trader. Stablecoins are pegged to FIAT currencies, eliminating the volatility of cryptos.
While most of the trading is done between BTC and any other asset, stablecoins provide an outlet to protect yourself against the overall depreciation of the market.
Stablecoins use a few different methods to provide stability to their value.
Some of the most prominent coins in this type of cryptocurrencies are Tether (USDT), Paxos (PAX), USD Coin (USDC) and TrueUSD (TUSD).
This is the last type of cryptocurrency. Basically a utility token, crypto exchange tokens have become pretty popular over time.
The reason? They have actual utility and are used. Exchange tokens may give advantages when making trades by lowering the trading fees for example. Different types are continuously being added, like staking coins on different exchanges with a premium return when holding some certain amount of that exchange’s token.
Many of the leading cryptocurrency exchanges have their own currency. Binance has BNB, Crypto.com has its own coin called by the same name and so does Huobi. Crypto exchanges are constantly bringing more to the table and this also reflects in the market caps of these coins.
Hopefully this overview of the different types of cryptocurrencies brought some clarity in terms of what can be found in the cryptocurrency landscape.
Before buying any altcoin, make sure you understand its purpose, as this will largely be attached to the possible future value of it.