As it stands, there are more than 10,000 cryptocurrencies in the market. While each and every cryptocurrency is slightly different, all of these coins fall under broad categories depending on what they are used for. In this article, we will learn more about the different kinds of crypto coins available and discover what they are used for.
Payment coins
Payment coins are forms of digital currency that pay for goods and services. These types of crypto coins allow value to be transferred between parties doing the same job as fiat currency. Payment coins are now accepted in a lot of retail settings to purchase real-world items such as cars, tickets, and even food.
While adoption is speeding up, improved network scaling solutions are still needed in order to match fiat payment processors such as VISA.
- Bitcoin
- Litecoin
Stablecoins
Stablecoins are cryptocurrencies designed to match the price of a real-world, fiat currency. These coins are described as being “pegged” to the US dollar, for example, and have a value that does not fluctuate as much as other cryptocurrencies.
Pegged to currencies like the US dollar, they are therefore a good place to store cryptocurrency and can be used as an unofficial form of tender in regions of economic upheaval and hyperinflation.
Used heavily in DeFi to provide liquidity, they can also be used to earn passive income in the form of yield.
- Tether
- USDT (Terra)
- USDC
DeFi tokens
DeFi coins are coins issued by automated decentralized finance protocols that operate on smart contracts. They are used to reward “stakers” for securing the network, providing liquidity, and enabling automated market makers (AMM) to operate. Also known as DeFi tokens, these coins only make up a small section of the overall crypto market but is growing rapidly.
- Luna (Tether)
- Dai (MakerDAO)
- LINK (ChainLink)
Governance tokens
As well as reward tokens, DeFi protocols also issue governance tokens to those who participate in the securing of the network. This is because Decentralized Autonomous Organizations (DAO) and DeFi protocols are largely run entirely by the community. Governance tokens are used to make decisions with users staking their tokens as a form of voting.
UniSwap, for example, issued 400 UNI tokens to wallets that participated with the exchange before September 2020. Most protocols will issue more governance tokens the more you have staked in it. The idea being that the more involved you are, the more say you have.
- UNI (UniSwap)
- CAKE (PancakeSwap)
- AAVE (Aave)
Privacy coins
Privacy coins are tokens that keep the anonymity of the user paramount.
While coins such as Bitcoin and Ethereum offer a form of pseudo-anonymity, careful observation of trading patterns and network activity can be used to trace identities back to exchanges.
Privacy coins, however, offer total anonymity. They do this through obfuscation techniques using complex algorithms and sometimes through the use of private blockchain ledgers. This makes tracing the identity of users almost impossible.
Governments dislike privacy coins due to their appeal to criminal organizations as they argue they can be used to hide money laundering, for example. A lot of exchanges are therefore not permitted to list some privacy coins.
- Monero
- Zcash
- DCR (Decred)
Meme coins
While some coins owe their market share to their utility, future promise, or legacy, meme coins are often created as a joke.
These coins are often spawned by internet memes and trends and typically don’t last too long.
Despite this, some meme-coins sit amongst the biggest cryptocurrencies in the world. Dogecoin, for example, has garnered a massive following and is endorsed by Elon Musk no less. It has also spawned a host of copycat coins, including the explosively successful Shiba Inu.
Meme-coins are often extremely volatile, even by crypto standards. Investors use them as “moonshots” to make quick profits, but investors also stand to lose considerably if the project is pulled or the coin’s value crashes.
- DOGE
- SHIB (Shiba Inu)
- ELON (Dogelon Mars)
NFT coins
Not to be mistaken for the non-fungible tokens themselves, NFT coins are used issued to owners for various activities. They are used to facilitate the economic activities of NFT projects but can often have a fiat value.
Some projects, such as Axie Infinity, issue tokens for playing, allowing players to earn as they play. Other NFT projects offer staking opportunities to encourage price appreciation and longer-term holding, rewarding owners with native tokens.
These tokens are used to govern, buy rewards, upgrade NFTs, and purchase items from an NFT project’s marketplace.
- MANA (Decentraland metaverse)
- SAND (Sandbox metaverse)
- AXS, SLP (Axie Infinity reward tokens)
Takeaway
The number of cryptocurrencies now available are numerous and growing. However, with this short article, you should now have a general understanding of the different coins available.
