NGSCRYPTO has rebranded to Hiddup

December 5, 2023

Different Types of Cryptocurrency: Coins, Tokens, and Stablecoins

Different Types of Cryptocurrency
Katya Richardson

Written by Katya Richardson

Share this article

The crypto market has thousands of different digital coins. Each one is unique and can be hard to understand. Bitcoin, a well-known type, was made to be like money, but it’s not legal everywhere. Because of this, most of the other types of crypto aren’t used as money. Instead, they are used for other things like investing or in technology called blockchain.

The continual emergence of new cryptocurrencies is fuelled by people’s desire not to miss out on potential financial gains. With an ever-growing array of cryptocurrencies on offer, it becomes more complex to discern their differences. This article will delve into the different types of cryptocurrency – Coins, Tokens, and Stablecoins – and explore their distinct features.

Understanding Cryptocurrency: Key Characteristics and Definitions

Cryptocurrencies are digital currencies that are extremely secure due to advanced coding, which makes them nearly impossible to counterfeit or misuse. They are unique because they are decentralised, meaning they are not controlled by any single authority like a government. Instead, they operate on a blockchain system, a type of record-keeping technology that is spread across many computers. This decentralisation is key, as it keeps them independent and less likely to be affected by government policies.

In simple terms, cryptocurrencies are digital forms of money that operate on a network distributed across numerous computers. This decentralised structure is critical, as it allows them to function outside the control of governments and central authorities. Their independence from traditional centralised systems is what sets them apart in the financial world.

Coins vs Tokens: The Two Main Categories of Cryptocurrency

In cryptocurrency, it’s crucial to differentiate between a “coin” and a “token,” as they serve different purposes. A digital coin, like Bitcoin or Litecoin, works similarly to traditional money and is created on its unique blockchain network. It’s used for transactions and as a digital form of saving.

On the other hand, tokens, such as Ether used in the Ethereum network, are more versatile. They are developed on existing blockchains and can do various tasks in computer programs, like granting access to an application, verifying identity, or tracking items. Tokens can also represent unique digital items, like NFTs, and are sometimes linked to real-world assets like artwork or real estate.

Different Types of Cryptocurrency

The easy explanation is cryptocurrency coins and tokens are different types of digital money. Coins have their system (blockchain) and are used like money. Tokens use someone else’s system and help run special apps (decentralised applications).

Deep Dive into Crypto Coins

Cryptocurrency has become increasingly notable for its ability to transform financial dealings and e-commerce.

Here are some of the key cryptocurrencies and their main uses:

Bitcoin (BTC):

  • Use: Bitcoin is the first cryptocurrency and is mainly used to buy things online. It’s also kept as a digital savings, like gold.
  • Tech: It runs on a blockchain, which is like a public ledger. Bitcoin uses a system where people solve complex math problems to check transactions and create new bitcoins.

Ethereum (ETH):

  • Use Ethereum’s more than just money; it’s a platform for building apps that run on their own (dApps) using ‘smart contracts’. ETH, its currency, is used to run these contracts and for transactions.
  • Tech: Its blockchain is special because it can run these smart contracts automatically when certain conditions are met.

Ripple (XRP):

  • Use: Ripple, with XRP, is made for digital payments, especially for sending money overseas quickly and cheaply. Banks and financial companies like it.
  • Tech: Ripple doesn’t use a typical blockchain but a shared ledger system supported by a network of servers and its currency, XRP.

As we delve into the blockchain technology that powers cryptocurrencies like Bitcoin and Ethereum, it’s crucial to also consider the environmental impact of cryptocurrency.

Exploring the World of Crypto Tokens

Tokens in the cryptocurrency world have a variety of uses, each offering unique functionalities and opportunities. Here are some of the crypto tokens that are popular:

  • Utility Tokens: These tokens provide access to services or products on the blockchain. They can be used for payment within the system. For example Filecoin.
  • Service Tokens: These tokens offer users access or use of a network. For example Storj. It’s similar to Google Drive or Dropbox but uses a different approach. Storj lets people rent out their unused hard drive space for cloud storage. Customers pay with Storj’s own tokens. To earn these tokens, the data hosts must prove they still have the data every hour through a cryptographic check.
  • Governance Tokens: These give holders voting rights in decentralised organisations or protocols. Decisions about the future of the platform, like upgrades or funding allocations, are often made through token-based voting.
  • NFTs (Non-Fungible Tokens): Representing ownership of unique items, NFTs can be used for digital art, collectibles, and even real estate in virtual worlds.
  • Finance Tokens: Another token example is Binance Coin (BNB) from Binance. Since it’s linked to a cryptocurrency exchange, it’s often known as an Exchange Token. In a broader sense, exchange and security tokens are part of Financial Tokens, which are used in financial activities like borrowing, lending, trading, crowdfunding, and betting.
  • Governance Tokens: These tokens let people vote on big decisions in a cryptocurrency network, keeping it decentralised. For example, DAOs, like Genesis DAO and MakerDAO, use this system.
  • Media and Entertainment Tokens: These are used for content, games, and online gambling. For instance, the Basic Attention Token (BAT) rewards users with tokens for choosing to view advertisements. These tokens can then be used to support content creators.

Stablecoins

Stablecoins are digital currencies designed to keep a steady value, unlike other cryptocurrencies that often change in price. They do this by having real assets as backup. This stability is useful for crypto traders, especially when the market is unpredictable, helping them protect their money.

What sets stablecoins apart from other digital tokens is their focus on being stable and safe, with their value backed by actual assets. Their amount in the market can change depending on how the market is doing. Companies, including big banks and tech giants like Facebook, are creating their stablecoins, like JP Morgan’s JPM Coin and Facebook’s LIBRA.

Conclusion

This is just a fraction of the existing cryptocurrencies that we discuss. Thousands of digital currencies are revolutionising the digital economy through blockchain technology. Bitcoin is at the forefront, gaining popularity with younger consumers.

However, the ongoing innovation in blockchain isn’t just about creating new currencies. Platforms like Ethereum are becoming significant as they facilitate the development of new software and the emergence of stablecoins, which are increasingly popular nowadays.

With the rising popularity of digital currencies, it’s essential to be aware of potential risks. Learn more about cryptocurrency scams and how to identify them to stay safe in the digital economy.

This evolution is enticing for investors looking to the future. Decentralised blockchain technology could potentially remove intermediaries in business transactions and make global payments more efficient.

Are you ready to take the next step? Learn more about How to Buy and Invest in Cryptocurrency: A Step-By-Step Guide.

The information presented on this website is general information only. It should not be taken as constituting professional advice from the website owner – Hiddup PTY LTD (Hiddup). Any information regarding past performance and returns contained on this website should not be construed or interpreted as a prediction or opinion as to future performance and returns. Hiddup is not a financial adviser. All views and observations expressed by Hiddup on this website are for information purposes only, are general in nature and should not be treated as investment or financial advice of any kind.