Everything about the different types of cryptocurrencies
The term “cryptocurrency” encompasses a wide range of digital currencies. But at the most basic level, the different types of cryptocurrencies can be broken down into two categories. First there is Bitcoin. And then there is everything else. Any other coin can be referred to as a Altcoin. But it can get much more granular.
Previously, all cryptocurrencies were simply viewed as competing forms of digital money. But as the crypto market has matured, it is now evident that this is no longer the case. Today we can classify the different types of cryptocurrencies based on their intended (or applied) use.
That being said, there is still a debate about whether there really are different types of cryptocurrencies. But from our point of view, it’s pretty clear that there are. And knowing the differences can help investors build a more diversified crypto portfolio. This way, stocks in other areas of the market can prevent your entire portfolio from falling if one area of the crypto market falls.
How to diversify with different types of cryptocurrencies
Just like that Stock market has different sectors, so does the crypto market. While most stocks fall into one of 11 sectors, most types of cryptocurrencies can be divided into one of five main categories …
- Media & entertainment
Not to complicate matters, some cryptos can fall into several categories. But that all makes sense in a nutshell. And with that we start by explaining the differences between the types of cryptocurrencies …
Anyone who has traded crypto on a decentralized exchange – such as PancakeSwap or AirSwap – should be familiar with financial cryptocurrencies. Most decentralized exchanges offer peer-to-peer crypto trading. Using these exchanges is like selling a property directly to a buyer without hiring a broker. And these decentralized exchanges usually don’t allow fiat currency to be traded for crypto. This is where these types of cryptocurrencies come in.
One of the most popular financial cryptocurrencies is BNB (AKA the Binance Coin). It was (of course) for use on the Binance exchange. People bought BNB and then exchanged those BNB for other cryptos on the exchange. But the use of BNB goes way beyond Binance at this point. Nowadays it is one of the most popular tokens used on decentralized exchanges. In fact, before it spread to more established exchanges, trading BNB was the only way to gain access SafeMoon crypto. Other popular examples of this type of cryptocurrency are Auger (REP), Balancer (BAL), and of course Bitcoin (BTC).
While the idea of an infrastructure cryptocurrency may be a headache at first, most likely you are already familiar with these types of cryptocurrencies … even if that’s just a matter of notoriety. The second largest crypto based on market capitalization (Ethereum) is technically an infrastructure crypto.
What makes these cryptos unique is that they are typically used to pay the owners of the computers they rely on to run programs on a shared blockchain network. Because of this, Ethereum became the network of choice for hosting NFTs… and why it became the crypto of choice to buy it. The important thing to know, however, is that blockchain networks, which have unique uses, usually require their own infrastructure cryptocurrency.
Popular examples of this type of cryptocurrency are Cardano (ADA), Polkadot (DOT), and Kusama (KSM).
Media and entertainment cryptocurrencies
This is one of the small types of cryptocurrencies. However, given the enormous potential – and somewhat limited competition – it could very well become a focus for startup coins in the future. Contrary to what you might suppose, Ethereum is not um technically a media or entertainment crypto – even if it fits the bill in some ways.
These types of cryptocurrencies are designed to reward users for creating content, games, or social media. They can also be used for certain network-based gambling applications. This type of crypto is also used for augmented and virtual reality applications.
The best known example of this is Basic Attention Token (BAT). However, other examples are Theta (THETA), Flow (FLOW), Alien Worlds (TLM), and Sport and Leisure (SNL).
As mentioned above, not all cryptos compete as a form of digital money. But that is exactly what these types of cryptocurrencies are for. Of course, everyone’s grandfather – Bitcoin – falls into this category. And everyone’s favorite meme-based crypto, Dogecoin, fits too … in its own silly way.
But the real nature of payment-oriented cryptos is that they take what Bitcoin did well and try to improve it in one of two ways. Some are specifically trying to compete with the fiat currency. This is the case for Stablecoinswhich are usually covered by some kind of underlying asset. Others try to speed up the transmission, scalability record, or the security of transactions. Stablecoins of this type include TrueUSD (TUSD), USD Coin (USDC) and Tether (USDT). Payment-oriented cryptos trying to improve on what Bitcoin started include Dash (DASH), Litecoin (LTC), Monero (XMR), and the relatively new ones telecommunications (TEL).
This is probably the most complicated type of cryptocurrency for people who are just starting to understand. But here is an important detail to get started. Blockchain technology is slowly but surely being applied to real-world applications. The health industry is a prime example of this. The ability to securely store patient records on a blockchain network offers many advantages to the current model of hospitals. And these types of cryptocurrencies provide the ability to provide users with digital identities that can be linked to that person’s record.
It’s pretty heady stuff, but essentially these cryptos provide a way to access personal or sensitive business data that is stored on the blockchain. Filecoin (FIL), Chainlink (LINK) and Storj (STORJ) are examples of this type of cryptocurrency.
The bottom line on the different types of cryptocurrencies
As we saw during the 2018 crypto crash, the entire market is is able to break through at the same time. Even the last Crypto crash left some coins intact. However, as crypto continues to mature, diversifying the crypto portfolio is a way to stave off some level of volatility.
But just as one major stock market crash can decimate any sector at once, a diversified short-term crypto investor can still be wiped out by the wrong headline. After all, it is an extremely headline-driven market. But long-term, diversified crypto investors have much less to worry about.
There will always be downward movements in the markets. But there will also be a lot of ups. If you want to learn more about the latest crypto market movers with a lot of potential, we recommend you sign up Manward Financial Digest. In it, crypto expert Andy Snyder offers meaningful investment advice that can be applied to both the crypto markets and the stock exchange.
over Matthew Makowski
Matthew Makowski is a senior research analyst and writer at Investment U. He has been studying and writing about markets for 20 years. Matthew, just as arguably in the process of identifying value stocks as he is haircuts in the cryptocurrency markets, began mining Bitcoin in 2011 and has since sharpened his focus on the cryptocurrency markets as a whole. He is a graduate of Rutgers University and lives in Colorado with his dog Dorito.