Understanding the 10 Types of Cryptocurrency in the Market

Cryptocurrency has revolutionized the financial landscape, offering new, decentralized digital currency alternatives to traditional ones. 

The number of cryptocurrencies available has grown exponentially over the last few years, and deciding which cryptocurrency to invest in can be tricky. 

Individual investors, traders, and institutional entities use cryptocurrency exchanges to trade cryptocurrency for traditional currencies and other assets. Crypto exchanges help businesses accept cryptocurrency payments in exchange for goods, facilitate blockchain transactions, and manage digital asset portfolios. 

What is cryptocurrency? 

A cryptocurrency, or crypto, is a digital, encrypted, and decentralized currency that utilizes cryptographic techniques to facilitate secure transactions. In other words, cryptocurrency is like decentralized digital money that people can use to buy services and assets, such as stocks. 

The fundamental difference between traditional currencies like the U.S. dollar and cryptocurrency is that no central authorities manage or maintain cryptocurrency. This decentralizes it, enabling peer-to-peer transactions without intermediaries. 

Cryptocurrencies: coins vs. tokens 

People often use crypto coin and crypto token interchangeably when referring to cryptocurrencies. However, they differ. Coins and tokens may use blockchain technology but contribute to the cryptocurrency ecosystem differently. Knowing the differences between coins and tokens can help determine which cryptocurrencies you want to invest in. 

What are coins? 

Coins are digital currencies that can operate on their independent blockchain. For example, Bitcoin (BTC) and Ether (ETH) each have their respective blockchains. Similar to traditional currencies, these coins also store value. They are fungible, portable, and limited in supply, making them comparable to physical forms of medium exchange. 

People who participate in cryptocurrency networks use coins as a primary form of digital money to buy goods and services and to transfer value amongst each other. In addition to coins with fluctuating value, stablecoins in cryptocurrency exist to provide a less risky option. 

What is a stablecoin? 

Stablecoins are a type of cryptocurrency whose value is pegged to other assets, like fiat currency. They aim to solve the uncertainty and volatility of other cryptocurrencies, which fluctuate drastically. Stablecoins combine the use of blockchain technology with the relative stability of a fiat currency to try to bridge the gap between traditional assets and crypto. 

What are tokens?

Tokens are digital assets that people build and operate on existing blockchain technologies. Unlike coins, tokens do not have their own blockchain. Instead, tokens are built on blockchain technology, utilizing smart contracts to facilitate business transactions, such as an investor funding a new project and receiving stake in it. 

Coins are more versatile than tokens because they can represent a wide range of assets, provide access to services, raise funds for developer projects, make purchases, and invest. People commonly use crypto tokens to fund projects, representing an investor’s stake. 

Cryptocurrency terms to know

Before we review some of the most popular types of cryptocurrency, below are some terms that explain how each type operates. 

• Blockchain: Blockchain is a decentralized, distributed, immutable ledger that records transactions across a peer-to-peer network. It is foundational to most cryptocurrencies. A block includes a grouped set of transactions with timestamps and reference to the previous block. Blocks make it challenging to alter data, offering security and protection. Blocks form a chain, hence the term blockchain. 
• Consensus: Consensus, as it relates to cryptocurrency, refers to the mechanism(s) in which a decentralized network agrees on the validity of transactions. Common consensus mechanisms include proof of stake (PoS) and proof of work (PoW). PoS is a consensus mechanism that uses randomly selected validators to confirm network transactions and validate data within blocks. Owners offer their stakes, or coins, for a chance to validate blocks and earn rewards. PoW, the consensus mechanism first used by Bitcoin, involves virtual miners competing to solve cryptographic math puzzles. The first to solve a puzzle receives new cryptocurrency coins as a reward. Once verified, a miner also adds the transaction to the current blockchain. 
• Cryptography: Cryptography is the practice of securing communication and data using mathematical techniques. It helps secure transactions in cryptocurrency. 
• Decentralized applications (dApps): Decentralized applications (dApps) are applications that run on decentralized networks like blockchains rather than a centralized server. Examples include decentralized finance (DeFi) platforms and gaming applications. 
• Fiat currencies: Fiat currencies, like the U.S. dollar, are government-issued currencies. Central banks and governments use regular fiat currencies. 
• Ledgers: Ledgers are used to record transactions that occur on a network digitally. Blockchains are actually distributed ledgers where transaction information is recorded in blocks and secured with cryptographic techniques. 
• Non-fungible tokens (NFTs): NFTs are a type of unique digital asset stored on a blockchain. Their uniqueness prevents them from being replicated. Art collectibles are a common form of NFTs. 
• Smart contracts: Smart contracts are digital agreements signed and stored on a blockchain that execute automatically when the stakeholders meet predetermined conditions and terms. Unlike traditional legal contracts, smart contracts don’t contain terms between two parties or extensive legalese. For example, a smart contract could streamline the mortgage process to provide a loan to a requester without needing banks, title companies, escrow services, and other intermediaries involved for approval.   
• Volatility: Volatility refers to the variation in cryptocurrency prices over time. Many cryptocurrencies, except some stablecoins, are volatile and fluctuate drastically. 

Ten popular types of cryptocurrency to trade

Today, thousands of cryptocurrencies are available, with a recent Forbes Advisor article citing over 22,000.  With so many different cryptocurrencies, it can be challenging to determine the one you’d like to invest in. While there isn’t a correct choice as it depends on your preferences, below are ten of the most popular frequently appearing in Forbes daily digital assets listings. 

1. Bitcoin (BTC)

Bitcoin is undeniably one of the most well-known names in crypto. An anonymous person or group of people named Satoshi Nakamoto created BTC in 2009, and it was the first cryptocurrency available. BTC operates without governing authorities and instead uses peer-to-peer transfers on a blockchain — a secured distributed ledger. 

2. Ether (ETH)

Programmer Vitalik Buterin created Ethereum in 2013 and launched it in 2015. Ethereum is a blockchain, and Ether is the name of the native token on the Ethereum network. Like Bitcoin, the Ethereum blockchain is a distributed ledger that enables the creation of smart contracts. Smart contracts allow network participants to interact and transact with one another without a central authority. 

3. Tether (USDT) 

Reeve Collins, Craig Sellars, and Brock Pierce founded Tether, a project initially called realcoin, in 2014. Tether is a stablecoin or cryptocurrency that pegs its value to an external fiat currency. For example, Tether is pegged to the value of the U.S. dollar at a 1:1 ratio. Tether also supports the euro (EUR), Mexican Peso (MXN), and offshore Chinese yuan (YNH). Like other digital currencies, Tether can move across blockchain networks, but it theoretically offers more pricing stability given its 1:1 peg to a government-issued currency. Tether couples the innovative nature of blockchain with the stability of fiat currencies to reduce volatility. 

4. Binance Coin (BNB)

Changpeng Zhao (CZ) launched Binance Coin (BNB) in 2017. It is a cryptocurrency people can trade on Binance, one of the largest crypto exchanges in the world. The Binance blockchain is built on Ethereum and uses BNB as its native token. It was initially created as a token for discounted trading fees but has since expanded into paying transaction fees on Binance.com. Some people also use it for payments, to book travel accommodations, or to exchange for other forms of cryptocurrency. 

5. Solana (SOL)

Solana is a newer cryptocurrency that Solana Labs launched in 2020. Solana is a blockchain that hosts decentralized and scalable applications similar to Ethereum. It differs from Ethereum in using a unique hybrid proof of stake and proof of history consensus model for faster transactions. This model works to process many transactions quickly, similar to a large corporation like Visa, without the same centralization. 

6. U.S. Dollar Coin (USDC)

A consortium co-founded by Circle called Centre launched USDC in 2018 as a joint venture between Circle and Coinbase. Like Tether, the USDC is a fully regulated stablecoin in a 1:1 ratio with the U.S. dollar. It offers the speed and security of blockchain technology while maintaining a price for stability. 

7. XRP (XRP)

David Schwartz, Jed McCaleb, and Arthur Britto developed and launched the XRP Ledger in 2011 and 2012. XRP is an open-source cryptocurrency that operates on the XRP Ledger (XRPL). A key distinguishing aspect between XRP and other cryptocurrencies is that XRP is pre-mined with a maximum supply of 100 billion tokens. Businesses and developers use the XRP Ledger to create solutions and use cases across industries, including infrastructure, developer tooling, gaming, payments, sustainability, and more. 

8. Dogecoin (DOGE)

Jackson Palmer & Shibetoshi Nakamoto created Dogecoin in 2014. Dogecoin originally started as a joke and rapidly evolved into a top cryptocurrency. The website states, “Dogecoin is the accidental crypto movement that makes people smile!” It’s an open-source, peer-to-peer crypto that uses blockchain technology.

9. Toncoin (TON)

In 2018, brothers Pavel and Nikolai Durav started exploring blockchain solutions for Telegram Messenger. Upon review, they decided to design a layer-1 chain called the Telegram Open Network (TON). The Telegram team later ceased development of TON in 2020 due to legal action with the U.S. Securities and Exchange Commission. The NewTON team — a small team of developers — picked up development in 2020-2021.

Today, users can buy, send, and store funds on TON’s network, which offers high scalability and speed. Toncoin’s use cases include peer-to-peer payments, support of decentralized applications, decentralized financial services, and facilitating the trading and management of NFTs. 

10. Cardano (ADA)

Charles Hoskinson, one of the founders of Ethereum, and Jeremy Wood founded Cardano (ADA)  in 2015, but they didn’t release it until 2017. According to their website, Cardano is the first blockchain platform built on peer-reviewed research. Cardano’s native token, Ada, is named after Ada Lovelace, the 19th-century mathematician recognized as the first computer programmer. Cardano uses the proof of stake consensus mechanism to determine consensus. 

How should I choose the best type of cryptocurrency?

Choosing the best cryptocurrency for you requires a comprehensive approach and review of your circumstances. Consider the following when determining where you want to put your money:

• Founders and supporting teams: Learn about a cryptocurrency’s history and founders for a holistic background of the team’s track records.
• Use case: Evaluate the cryptocurrency’s practical applications to determine whether there are strong use cases with long-term viability.
• Security: Review the history of cryptocurrencies to understand previous security breaches or issues.
• Liquidity: Determine how easy it is to trade digital assets into fiat currency.
• Market capitalization: Understanding the market cap, or the total number of mined coins multiplied by the price of a single coin, can help you determine how stable a cryptocurrency might be. 

Let’s make a trade

Cryptocurrencies are more than just a new form of money. They’re innovative and disrupting the financial landscape. As the cryptocurrency landscape evolves, staying informed of the different types of cryptocurrencies can help you decide which ones you’d like to trade. 

How much do you really know about your financial risk tolerance? Explore more here.