Different Types of Cryptocurrencies Explained - Coins & Tokens with Examples
We have to start with the original cryptocurrency - Bitcoin.
The idea behind Bitcoin is:
- No fees
- Instant transactions
- A peer to peer process - no middlemen like a bank
Due to scaling issues Bitcoin is more of a store of value than a digital currency. Think digital gold.
While Bitcoin doesn't currently meet its goals, it still introduces us to the first category of cryptocurrencies:
Payments / Currency Coins
This isn't a complete list and some have different uses, but they fall under this category.
These types of cryptocurrencies are used to make payments and move money around. They're like an online version of the money you currently use - USD, EUR, GBP, etc.
The end goal is:
- No fees
- Instant transactions - real time payments
- Safety - no losing funds by mistake
- Security - no hacks or fraud
- User friendly - easy to use
- Complete privacy
- As little harm to the environment as possible
- Reliable store of value
Decentralized Apps / Platform Tokens
- Ethereum (ETH)
- Cardano (ADA)
- NEO (NEO)
- EOS (EOS)
- Ethereum Classic (ETC)
- Qtum (QTUM)
- NEM (NEM)
Again this isn't a complete list and some have different uses, but they fall under this category.
These are platforms for decentralized applications and smart contracts - applications that do exactly what they say and cannot be interfered with or censored.
The cryptocurrency that these platforms use are tokens - why do we need tokens?
Let's look at Ethereum:
- Ethereum is the network
- Ether is the currency
- Decentralized Apps run on the Ethereum network
So why do decentralized apps need their own token? Why don't they just use Ether?
Using tokens makes the whole process much more smooth and simple.
Tokens are a representation of any type of asset / utility on a different blockchain and can be traded / exchanged for goods and services.
Imagine an all inclusive holiday resort - you pay for a wrist band and you get access to everything. All the food you can eat, all the booze you can drink, and all the services you could ever need - laundry, spa treatment, entertainment, etc.
Rather than paying for every service in there every time you use it, you flash your wristband and get what you want. It's convenient.
- The holiday resort is the decentralized app
- Ether is the money you used to buy the wristband
- The wrist band is the token
- Monero (XMR)
- Zcash (ZEC)
- Bytecoin (BCN)
- Verge (XVG)
- Bitcoin Private (BTCP)
- Zcoin (XZC)
- Enigma (ENG)
Not a complete list - some are trying to be private currencies while others are trying to be private platforms for smart contracts. They all fall under privacy though.
Bitcoin and other cryptocurrencies are not private. Anybody can look at your entire payment history and see what you've been up to.
What privacy coins aim to do is ensure all your transactions remain untraceable back to you. This is done through a different kind of cryptography that other cryptocurrencies don't prioritize.
Privacy coins also solve the problem of fungibility. What does this mean?
When an asset is fungible, you are able to switch / exchange it with other assets of the same type.
I lend you $10, you can pay me back by giving me:
- A $10 bill
- Two $5 bills
- Ten $1 bills
In this example, the dollar is fungible. You can swap a bunch of the same assets around and neither of us lose any value.
If I lend you my phone and you come back and give me a different phone - I'm not going to be a happy bunny. Even if it's the same model and in the same condition.
In this example, my phone is nonfungible. No matter how much you try to convince me - my asset has a different value and I now have a plethora of problems to deal with. Getting rid of you being the first one.
Winding it back in to cryptocurrency... Let's say you just bought some Bitcoin. Three years ago some geezer used these Bitcoins to make illegal purchases - drugs, weapons, services, etc.
Even though you had nothing to do with it - your new Bitcoins are tainted. Some services and exchanges could decide that your tainted Bitcoins don't hold as much value as clean Bitcoins.
Why should you be punished based on previous owners? It's not fair and it makes no sense.
If all transactions are untraceable and private - there can be no such thing as clean coins and tainted coins. They're all in the same boat. They're fungible!
This is why privacy coins are supported.
Finance Coins & Banking Coins - FinTech
- Ripple (XRP)
- Stellar (XLM)
- OmiseGo (OMG)
- Tether (USDT)
- Populous (PPT)
- Salt (SALT)
- Request Network (REQ)
Not a complete list - some focus on lending and invoices, others focus on banks and businesses. They all fall under the finance and banking category.
Global payments are slow, expensive, and unreliable. Banking coins aim to connect banks, exchanges, corporations, and payment providers together allowing instant payments for a lower cost. These coins plan to handle large amounts of money.
Finance coins work with banks, payment providers, and people in order to provide financial services (like lending) to all levels of income.
Poverty stricken people don't have access to many supportive financial services. Most of the ones available take advantage of their unfavorable situation. Imagine if half the world suddenly had access to these services - billions of people given a fighting chance.
Some of these coins focus on connecting business owners with invoice buyers. Some solely exist to work as a reliable exchange rate between cryptocurrencies and native currency. Some are for investing.
These types of coins cast a wide net - you'll have to dive a bit deeper if you're interested.
Compatibility Coins & Exchange Coins
- Binance Coin (BNB)
- Hshare (HSR)
- ICON (ICX)
- Ark (ARK)
- 0x (ZRX)
- Kyber (KNC)
- Bancor (BNT)
Not a complete list - most exchanges nowadays are coming out with their own coin with different uses.
Compatibility coins are used to send money and data between different blockchain systems. Value transfer and data transfer is incredibly useful for all kinds of industries.
The goal is to link all of the blockchains / cryptocurrencies together into a connected ecosystem that can share applications. This will make everything easier to use - which will allow mass adoption.
Exchange coins have a number of uses and each one is different. Most of the time they're used for trading speed and liquidity.
They can also be used to reduce the cost of fees on the exchanges. Some exchange coins reward you for investing by sharing the profits made through trading fees.
Social Coins, Media Coins & Gaming Coins
- Steem (STEEM)
- Basic Attention (BAT)
- Loom Network (LOOM)
- Status (SNT)
- ReddCoin (RDD)
- FunFair (FUN)
- WAX (WAX)
- Enjin Coin (ENJ)
This is not a complete list - these coins are trying to put more of the power in content creators hands rather than middle parties.
Some social coins focus on messaging and payments - in these cases they focus on privacy.
Other social coins / media coins aim to replace web browsers by providing more privacy and by allowing you to reward your favorite content creators through tips.
Advertising is handled differently - payment comes through engagement and attention.
Currently digital advertising is full of fraud and it's run by middle parties which profit from users and advertisers.
Users are taken advantage of through digital advertising every day:
- Up to 50% of your data is wasted on ads and trackers
- Websites and videos take longer to load
- Phone battery life is shortened by loading ads and running trackers
- Your privacy is violated by trackers - websites can see what you do on the internet
- Malware gets advertised which violates your security and is a pain to remove
Your safety, privacy, time and money is wasted and abused every day by ads.
Advertisers lose out as well:
- Targeting isn't specific enough - users ignore ads most of the time
- Advertises get very little information on what they're actually paying for
- Ad block is the standard because of the points mentioned above - legit advertisers lose out
- Bots and fraud run rampant - your budget can get eaten up by competitors
While it's impossible to eliminate all of these problems - some social coins / media coins aim to make the experience better for users and advertisers.
Some gaming coins focus on making virtual market places where you can trade game assets - skins, collectibles, even services.
Other gaming coins focus on hosting games and creating games. One of the main focuses is going to be casino style games by providing security, privacy and lower costs.
When using smart contracts, games cannot be rigged - the whole experience will be fair and trusted. Your funds can't be frozen and you can cash out whenever you want.
Business Coins & Industry Coins
- VeChain (VEN)
- Waltonchain (WTC)
- Ardor (ARDR)
- Syscoin (SYS)
- Centrality (CENNZ)
- Neblio (NEBL)
Not a complete list - some are similar to the decentralized app platforms.
These fall under business coins and industry coins because they're focusing on working with companies and enterprises.
Some of them are targeting specific industries while others are trying to tackle as many industries as possible.
Blockchain technology, decentralized apps, and smart contracts have the potential to revolutionize certain industries:
- Supply chains
- Automobile / Transport
- Food & Drink / Cold Storage
- Luxury Goods - Liquor, Collectibles, Jewellry
- Authentication & Logistics
This list could go on and on.
Some of these coins will allow you to track a product throughout its entire journey - from manufacturing to your possession.
This provides security, regulation, authenticity and transparency. You can make sure your organic blueberries are actually organic. Your expensive ruby can be verified every step of the way on its journey to you.
Coins like these let you be in control of your data. Imagine a digital passport on your car that cannot be tampered with.
You can check the cars repair history, insurance issues, previous owners, driver behavior, registration, etc. This protects people against fraud and keeps the people that play by the rules safe.
There are millions of use cases just like these. Business coins and industry coins are tackling these problems.
Computing Coins & Storage Coins
- Golem (GNT)
- Siacoin (SC)
- MaidSafeCoin (MAID)
- Storj (STORJ)
- Byteball Bytes (GBYTE)
Computing coins offer computational power to those who need it: content rendering, data analysis, machine learning, AI, etc.
They behave like a decentralized supercomputer. Unused machines all over the world can be used to perform useful tasks for a small price.
Imagine I have a large animation I need rendering. On my laptop it will take two weeks to finish. If I don't want to wait that long I can access the network and use computational power from all over the world to render my animation faster.
Storage coins use blockchain technology to build decentralized storage platforms for data. Hard drives all over the world are being underutilized. Using these hard drives to store information is more reliable and more cost effective than traditional cloud storage.
Some of these coins also aim to tackle data management and security. Companies profit every day from your data - coins like these aim to give you more control over your data.
Imagine hand picking which data you don't mind sharing - and then selling it to data companies yourself rather than a third party making money off you.
General Coins & Niche Coins
- IOTA (IOTA)
- Augur (REP)
- Power Ledger (POWR)
- Storm (STORM)
- Dentacoin (DCN)
General coins are incredibly ambitious projects that aim to change the world in multiple ways. They try to be a jack of all trades rather than focusing on one area.
IOTA falls under this classification - let's have a deeper look at what they're trying to tackle.
You'll commonly see the terms "Internet-of-Things" (IoT) and "Machine Economy".
There's an increasing amount of connected devices in the world: phones, sensors, electronics, etc. The world is becoming more interconnected and the problem with this is the insane amount of data being produced and consumed.
Broadband speeds are not increasing fast enough to support the rate at which we're growing. A solution to this is sharing - commonly called "Sharing Economy".
Most of the electronics you own spend the majority of the day sitting idle. You only need your coffee machine to be active a few times a day.
In the age of Internet-of-Things, you can lease your electronics out to other people that have a use for it when you don't.
Don't confuse this with your coffee machine flying out your window and making a coffee for someone else. Rather the processing power of your coffee machine is rented to people that need it rather than it sitting idle doing nothing.
Individuals and machines will be able to pay for what they consume when they consume it. If the global market were to shift from paying for usage rather than paying for ownership - manufacturers would build products that last and are easy to recycle.
This is just the entrance of the rabbit hole - it goes much deeper. Through machine economy and smart contracts, machines will be able to communicate with each other and perform tasks on their own automatically.
Human input and task management is slow compared to the instant communication between machines.
The chain of events that can snowball from a system like this is next level. Let's use cars as an example.
Your car can drive itself because it can communicate with road sensors and other cars to avoid collisions and stay on course.
Your car can also rent out its bandwidth to other people when you aren't using it. The solar panels on the roof of your car can generate electricity that you can sell to the grid.
The processors inside your car can be used by other people when you're not using them. The data generated by your car can be sold to data companies - traffic reports, road conditions, etc.
All of this is happening in the background - the machines are communicating with each other. If certain criteria that is defined in smart contracts is met - the machines act accordingly. The potential for a system like this is limitless.
Niche coins aim to solve a specific problem or provide a specialized service.
Power Ledger for example focuses on renewable energy. Dentacoin is targeting the dental industry by focusing on dental care and affordability. Augur is tackling prediction markets... You get the idea.
Cryptocurrencies fall into multiple categories - don't get hung up on the examples I provided. I tried to include as many coins as I thought was sensible.
This is a general guide, not a specific guide. If specifics are more your cup of tea, scroll back up to the lists and find complete breakdowns and explanations on popular cryptocurrencies.
I plan to add to this guide regularly as cryptocurrency projects develop. If you have any questions, leave them down below and I'll get to them.
I hope this helped you further understand the world of cryptocurrencies. If you believe you can explain a point more clearly, hit me up and I'll update this article.
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