While you may not have heard about Ethereum, you are likely familiar with Bitcoin. What if I told you there are other crypto currency types? You’ll be amazed at the variety of crypto currency types available, including web3 tokens and ICO tokens, HTML20-tokens tokens, DeFi tokens, and tokens to stablecoins.
The altcoin season is on the bull, and Bitcoin prices continue their rise, especially after Elon Musk changed his Twitter bio to #bitcoin. The crypto market is a giant and the industry will grow to even greater heights.
If you are curious about the future of Bitcoin, then read on to learn more about the various crypto currency types. Hopefully, you’ll find some insight to diversify and increase your investment portfolio.
What is Cryptocurrency?
Cryptocurrency works in the same way as fiat currency, but it’s decentralized. It relies only on the peer-to-peer community computer network that is made up of user machines or “nodes.” This means it’s independent and is not controlled by any central bank or monetary authorities. Also called virtual currency or digital money, cryptocurrency is used for transacting purposes.
Contrary to U.S. dollars and cryptocurrency, ownership of cryptocurrency is typically recorded on a blockchain that only uses a few essential components. It’s a distributed ledger that is shared across all nodes in the network. It also contains encrypted transactions, timestamp servers, Proof of Work consensus, and a network of nodes.
Does that sound too complex?
This setup expands cryptocurrency’s capabilities beyond regular money. As you will see with the case for crypto tokens. Bitcoin was the first currency to be created differently, and this led to a major decentralization trend, where traditional banks and governments no longer have any say in your privacy.
The Difference between Tokens and Coins
There are three types available in cryptocurrency. This includes tokens, altcoins, and bitcoin.
Bitcoin
Satoshi Nakamoto, an anonymous developer, published a whitepaper in 2008 that described the first electronic money without banks or governments– Bitcoin. It promises lower transaction fees than traditional online payments and is completely decentralized. It is the most well known crypto currency type in the world.
There are no bitcoins physically. Only the balances on a decentralized public blockchain system (known as a Blockchain) are kept. These balances of Bitcoin tokens can then be used as public keys to decrypt encryption. The public key can be described as your bank account number and allows you to send or receive Bitcoin. The private key, on the other hand, is a secret key that you use to authorize bitcoin transactions.
Bitcoin can be used to pay for goods and services, provided it works in the same way as fiat currency. Although bitcoin is decentralized, its attractive exchange rate against the dollar is what makes it appealing to potential investors and traders. Although it is not legally tenderable, Bitcoin remains a very popular cryptocurrency that has inspired many people to create their cryptocurrencies, collectively known as altcoins.
Altcoins
Bitcoin at first was the only cryptocurrency. But, later on, other projects began to emerge. Altcoins were thus born. You may have heard of Ripple and Bitcoin Cash, Litecoin, Ripple, and Monero. They all, along with many others, were born from their native platforms, native Blockchains. Each one was slightly different than the Bitcoin blockchain.
These new coins, like Fantom, were mostly designed for a single purpose: to be able to use digital currency as an alternative to Bitcoin.
They were created to compete against Bitcoin by altering the rules to appeal to different users. Ironically, even though some of them challenge Bitcoin over the years, the market is still dominated by the 10-year-old grandpa. All the other crypto coins can be referred to as altcoins or alternate coins.
Tokens
Crypto tokens are usually created to help kickstart the cryptocurrency-related ecosystem. It almost works like bonus miles. Although you cannot buy bread with accumulated miles, you can purchase a ticket to a flight. The more miles you have, however, the better the airline’s ecosystem will be. This same process applies to crypto tokens.
You won’t be disappointed, there are plenty of practical examples in the article. It’s important to understand that crypto tokens do not necessarily need their blockchains, and can be developed on top of other platforms. Tokens are often used to reward people for joining the network or voting for changes, which is a different function from crypto coins.
Different types of Crypto Tokens
Based on the functions that crypto tokens perform, they can be divided into different categories.
ERC-20 Tokens
ERC20 tokens differ from all other types of tokens in that they are built on top of the Ethereum blockchain.
ERC20, in reality, isn’t a token. It is more of a standard token. Let’s say a company decides that it will launch a dApp on the Ethereum platform. This is a decentralized app. To make their token work, they must agree with the ERC20 standard which defines a set of rules.
The tokens listed below are all considered ERC20, provided they are launched on Ethereum. We will be exploring different types of tokens. Some tokens may belong to more than one category.
Exchange Tokens
A crypto trading platform can differentiate itself from its competition by offering a variety of currency pairs.
These tokens add value because they can be used to pay fees, buy or sell other cryptocurrencies, and power certain operations like community voting for new coins.
The BNB token is undoubtedly the most well-known and liquid exchange token. It’s used on the Binance exchange. There are still other exchange tokens like Huobi Token, KuCoin Shares and (KCS), etc.
DeFi Tokens
The DeFi token was all the rage during the DeFi summer of 2020. DeFi stands for Decentralized Financing. It refers to decentralized applications that involve finance such as trading and lending and borrowing, derivatives. Synthetics, insurance, and many more.
DeFiTVL has increased from $1B in 2020 to more than $100B by 2022 in Bitcoin’s bull market. Does this mean that it could be a channel to disrupt crypto? How do you know if it is?
The crypto niche is still centralized, despite what you may think. Consider Binance as an example. It still belongs to people who disagree with Satoshi’s vision.
What distinguishes DeFi from other crypto platforms is its desire to avoid them. DeFi projects allow users to lend and borrow within a peer-to-peer network and leverage the loans. Users can also “farm” tokens to simply be active.
Those tokens called “farmed” or tokens created on top of these platforms are DeFi tokens. They include but are not limited to, Chainlink (LINK), Uniswap(UNI), Aave/AAVE, Dai (DAI), etc.
Governance Tokens
Governance tokens can be used to make decisions that will govern or dictate the future of a protocol. Token holders can vote and have a say in the decisions regarding new features and changes to the governance system.
On-chain governance is becoming more popular in decentralized protocols. This allows token holders of governance tokens to influence decisions through in-place voting systems. Governance is an important part of Dapps, as they are growing in popularity. It allows developers and stakeholders to work together to shape the future protocol through transparent discussions and debates.
AAVEtoken, for example, gives community holders the right to vote on important changes to AAVE protocol. This means that AAVE holders can vote on proposed changes and upcoming proposals.
Real World Asset Tokens
This type of token is also known as the security token. It could become the next big thing in cryptocurrency once regulators around the world decide how to regulate it. Real World Asset tokens manage real-world assets going through “tokenization”, which is the process that turns real-world assets like real estate into digital tokens.
As an investment, let’s say you are looking to buy a portion of an apartment in New York but not the entire apartment as it is too costly. This can be done by purchasing digital assets that are easily split.
Although security tokens have been around for a while, it is not easy to make them work. It takes a lot of regulation and standardization before they can be used. We haven’t seen much about them.
PaxG token (or Pax Gold) is an asset-backed token. One token represents one fine troy of a London Good Delivery Gold bar. It is stored in professional vault facilities. Any owner of PAXG is entitled to the gold in Paxos Trust Company’s custody, making it an asset token.
ICO Tokens
ICO (Initial coin Offering) was launched three years ago. It has been a success. Sometimes, crypto projects with questionable origins were trying to raise funds and created new coins to do so. An ICO is a source of capital for startups.
Investors interested in the offering can purchase a token and receive a new cryptocurrency token. Companies will be able to raise enough money to continue their development efforts. These tokens can be traded for BTC or ETH. They are generally easier to exchange for currencies and have higher market liquidity.
Today, ICO is becoming obsolete as the market changes.
Web3 Tokens
Web3 tokens are intended to decentralize the internet infrastructure, so it can be owned by the people and not rely on existing Web2 giants. Web3 tokens aim to make the internet more accessible to all.
Did you know there are over 700,000 miles of sub-sea cables in operation today? Google owns 63,605 miles, 8.5% of all cables, and Facebook has 57,079 miles; Amazon has 18,987; Microsoft 4,014. These companies hold significant amounts of submarine cables that make up the internet’s infrastructure.
Web3 tokens can be tokens that are built on top of crypto platforms that seek to stop this trend. They also reward their users with Web3 tokens for helping to develop the other trend.
The decentralized project Filecoin lets users store data from other users in exchange for Filecoin tokens. is an on-chain storage option that allows users to store information on websites forever.
Participants who authorize their node to the ThreeFold ecosystem receive the ThreeFold token. This stands for an Internet free from global corporations.
Utility Tokens
Utility tokens are assets that have been integrated with blockchains. They allow users to buy goods or services in the future. Utility tokens, unlike security tokens and other tokens, are not an investment. They help to sustain the platform’s economy by providing the service.
Binance Coin, a utility token, boasts about its payment method related to trading on its Exchange. This utility token can be used to receive discounts on trading fees. You can also use it to pay travel expenses, gift cards, and other purposes. The utility coin’s purpose is to increase the development and ecosystem of the platform.
Utility tokens tend to be more flexible. Utility tokens are more flexible and can be used for multiple purposes. They also can function as other types of tokens. One common example is governance tokens and utility tokens.
Non-fungible Tokens
Non-fungible tokens (NFTs), are digital certificates of ownership for a unique asset on the blockchain. This token is most commonly used to signify a work of art. However, it can also be used for other assets such as photos, videos, and audio.
On the Ethereum Blockchain, 2015 saw the creation of the first NFT. It is impossible to exchange a digital signature for another. The digital signature allows the holder to have an original item in a limited supply, uniqueness, or edition. The issues can be difficult to reproduce due to their perceived high price.
The best NFTs are those that allow only one or a few people to own the original. It allows artists, creators, collectors, and others to sell their items. You can sell them in NFT markets such as OpenSea and Rarible. Popularity, royalty payments, royalty payments to artists for the sale of art to new users, partial ownership of expensive assets, auctioneering (e.g. Taco Bell’s auction of NFTs), creating unique moments, or keeping histories for trading and celebrity issuing. They can be distinguished from Initial Coin Offering tokens which are the normal Initial Currency Offering tokens that are offered by a crypto exchange promotion.
Examples of NFTs include Bored Ape yacht Club (BAYC), Blockchain Gaming assets, and Metaverse land. Jack Dorsey, Twitter founder, first tweets NFT. Beeples The First 5500 Days.
Stablecoins
Stablecoins are tokens with a constant value. Most popular stablecoins are those that are tied to the dollar (USDC and BUSD) and are usually backed by an asset of a stable value, or a relatively stable asset such as fiat currency or short-term US Treasury bills.
Other stablecoins are also available, including euro stable coins and gold-backed coins.
Stable tokens are a way for the world to get rid of volatility in digital currencies or assets. They must be backed by a specified ratio, and the asset backing them must also be kept in reserve as per the defined ratio.
There are fiat, cryptocurrency, and commodity-backed stablecoins, but there are also algorithmic steady coins that use software and rules to maintain a stable peg with fiat. However, most of these have failed.
Here are some examples of stablecoins
Asset-backed: Tether, USDH Gemi Dollar, USDC, and Paxos.
Tether Gold (XAUT) and DigixGlobal(DGX) are both commodities backed.
Stable: Algorithmic-backed, stable: Ampleforth / AMPL / USD Terra / UST , Empty Set Dollar (ESD), Frax & Frax (FRAX).
Privacy tokens
Privacy coins, as the name implies, are cryptocurrencies that can be used to protect privacy. Their code encourages greater privacy than Bitcoin or mainstream crypto.
One could have better privacy with crypto transactions for many reasons. These include security investigations and privacy rights, high-sensitive transactions, and sensitive transactions. However, they can also be used to commit crimes and scams.
These cryptocurrencies include different ways to ensure transaction privacy. Coin mixing, anonymity techniques such as CoinJoin, and offline transactions are all included in these cryptocurrencies. These are in addition to mainstream crypto techniques, e.g. inability to tether real-world names with blockchain encryption and crypto addresses.
Even smart contract privacy networks are possible. However, everything is privacy-enabled automatically by default.
Examples of privacy tokens include Secret Network and Monero. Zcash is another example. Dash is another example.
Conclusion
You now know most of the details about various crypto currency types. There are almost 5,000 coins available, even though there are many cryptocurrencies on the market. As cryptocurrency becomes more mainstream, we will see more altcoins or tokens. Understanding these basics will help me make better decisions for my future investments.
