Cryptocurrencies, once a niche digital asset class, have burgeoned into a diverse ecosystem encompassing a vast array of coins and tokens, each with its unique properties and use cases.
Here's a breakdown of the different types to help navigate this rapidly evolving landscape:
Coins
At the most basic level, we have coins. These coins are native to a blockchain and act as both the medium of exchange and the reward for verifying the network. Examples include bitcoin on the Bitcoin and ether on Ethereum blockchains. Some go so far as to say bitcoin is the only true ‘coin’ and all others, including ether, are “Altcoins”.
Altcoins
Altcoins is a catch-all term for cryptocurrencies that are not bitcoin. They can have any number of characteristics and serve a variety of purposes depending on the goals of the project. Since 2011, there have been thousands of newly created altcoins. Some of the most notable include ether, Litecoin, Cardano and DogeCoin. “Bitcoin dominance” refers to the ratio of bitcoin’s market capitalisation versus the market capitalisation of all cryptocurrencies (i.e. all altcoins plus bitcoin).
Tokens
Tokens are units of value that operate on blockchains but which are unrelated to the consensus mechanisms or security of those blockchains. Tokens often serve specific functions within those networks. Prominent examples include most stablecoins, DAO, DeFi tokens and NFTs. Most are made with Ethereum's ERC-20 and ERC-721 smart contracts. Tokens can fall into sub-categories depending on their use cases, such as utility, security and asset-backed.
Stablecoins
Stablecoins are tokens whose value is intended to be pegged to another asset, such as fiat currency, exchange-traded commodities or a basket of currencies. Different stablecoins have different approaches to achieving price stability by maintaining reserve assets or using algorithmic formulas that are intended to control supply. They play an important role in hedging volatility and make up some of the largest and most used forms of cryptocurrency.