Different types of cryptocurrency: All you need to know

Types of cryptocurrencies explained

There are now over 20,000 different digital assets in circulation, each with distinct characteristics and purposes. And the first thing you need to do to start understanding this vast ecosystem is recognizing the fundamental distinction between coins and tokens:

• Coins operate on their own independent blockchain networks. For example, Bitcoin runs on the Bitcoin blockchain, while Ethereum operates on its own network and Litecoin has its dedicated infrastructure. These are native assets that power their respective ecosystems and serve as the primary medium of exchange within their networks
• Tokens are built on existing blockchain platforms. Most tokens today run on established networks like Ethereum or Solana. They leverage the underlying blockchain's infrastructure while serving specific functions within decentralized applications (dApps) or representing particular assets

Cryptocurrencies can be categorized through two primary frameworks:

• Functionality classification, which groups crypto by use case, such as payment currencies like Bitcoin and Litecoin, smart contract platforms including Ethereum and Cardano, privacy coins like Monero and Zcash, stablecoins like USDC and Tether and utility tokens that provide access to specific services.
• Technical layer classification, which organizes cryptocurrencies by their infrastructure role. Layer 1 protocols form the base blockchain networks, Layer 2 solutions improve scalability and transaction speed and application layer tokens serve precise functions within dApps.

This classification system helps investors navigate the space by understanding whether a digital asset operates as foundational infrastructure, scaling solution or specialized application tool. 

Top 16 types of cryptocurrency

The cryptocurrency ecosphere covers thousands of digital assets, each serving specific functions from payments and smart contracts to governance and entertainment:

1. Bitcoin (BTC)
2. Ethereum (ETH)
3. Altcoins
4. Stablecoins
5. Memecoins
6. Payment cryptocurrencies
7. Privacy coins
8. Store-of-value cryptocurrencies
9. Infrastructure cryptocurrencies
10. Financial/DeFi cryptocurrencies
11. Service cryptocurrencies
12. Media and entertainment tokens
13. Non-fungible tokens (NFTs)
14. Security tokens
15. Central bank digital currencies (CBDCs)
16. Governance tokens

1. Bitcoin (BTC)

Bitcoin is the world's first cryptocurrency, launched in 2009 by the pseudonymous Satoshi Nakamoto. Operating on a Proof-of-Work (PoW) consensus mechanism, Bitcoin functions as a decentralized store of value independent of traditional financial systems. 

Its blockchain network validates transactions through energy-intensive mining, creating an immutable ledger of all Bitcoin transfers.

Bitcoin's primary advantages include its massive network effect as the most well-known cryptocurrency, comparably stronger security through its computational power requirements and proven resilience over 16 years of operation. However, drawbacks include its high energy consumption from mining operations, limited transaction throughput and price volatility that makes it hard to use as an everyday currency.

Bitcoin’s use cases center on its perception as a digital store of value and as a cross border payment option, particularly in regions with unstable currencies or banking restrictions. Institutional adoption has grown substantially over the past few years, with companies like Tesla and MicroStrategy adding Bitcoin to their treasury reserves.

Price drivers include Bitcoin's fixed supply cap of 21 million coins creating long-term scarcity, institutional adoption rates, regulatory developments and broader macroeconomic trends affecting risk asset appetite. The Bitcoin halving that reduces new supply issuance every four years also significantly influences Bitcoin's market value and price trajectory.

2. Ethereum (ETH)

Ethereum revolutionized blockchain technology with smart contracts, which are programmable agreements that execute automatically when predefined conditions are met. 

Ethereum transitioned from energy-intensive PoW to the more efficient Proof-of-Stake (PoS) consensus mechanism in 2022, reducing its energy consumption by over 99%. However, the network still charges gas fees for transaction processing and smart contract execution.

Ethereum's strengths include its strong support for dApps, dominance in decentralized finance (DeFi) with billions in value locked and leadership in the NFT ecosystem. The platform hosts thousands of projects ranging from lending protocols to digital art marketplaces. 

However, high transaction fees during network congestion periods and increasing competition from faster, cheaper alternatives like Solana remain ongoing challenges.

The cryptocurrency’s primary use case involves serving as the foundational infrastructure for the decentralized web, hosting everything from financial protocols to social networks and gaming platforms. Ethereum's native currency ETH also functions as gas for network operations and serves as collateral in many DeFi applications.

Ethereum’s price is largely moved by network usage levels reflected in transaction volumes and fees, major protocol upgrades that improve functionality or reduce costs, the growth of DeFi and NFT sectors built on Ethereum, staking rewards and competitive pressure from alternative smart contract platforms. 

3. Altcoins

Altcoins (alternative coins) include all cryptocurrencies other than Bitcoin and Ethereum, representing thousands of alternative digital assets with diverse functionalities and use cases. 

They were created to address perceived limitations in Bitcoin's design or to serve entirely different market needs. Popular examples include Litecoin (LTC) offering faster transaction times and Cardano (ADA) which emphasizes academic research and sustainability.

Altcoins offer several advantages including specialized features for specific use cases; lower transaction costs compared to Bitcoin and the potential for higher returns during bull markets. Many implement innovative consensus mechanisms, governance structures or exhibit technical improvements. 

However, they face significant disadvantages including lower liquidity and adoption rates, higher volatility and risk of project failure, and intense competition in crowded market segments.

Different altcoins serve niche purposes. Litecoin focuses on faster payments, while Chainlink provides oracle services connecting blockchains to real world data and Polygon offers Ethereum scaling solutions. 

Price drivers vary by project but generally include technological development milestones, partnership announcements, adoption metrics and overall cryptocurrency market sentiment.

4. Stablecoins

Stablecoins are cryptocurrencies designed to maintain a stable value by pegging to external assets like fiat currencies, commodities or algorithmic mechanisms. These digital assets bridge traditional finance and cryptocurrency markets by offering price stability while retaining blockchain benefits including 24/7 trading and programmability.

Four main subtypes exist: 

• Fiat-collateralized stablecoins – generally backed by traditional currency reserves, most commonly the US dollar (for example, USDT and USDC).
• Crypto-backed stablecoins – variants overcollateralized with cryptocurrency assets (for example, DAI). 
• Commodity-pegged stablecoins – tied to gold or other materials.
• Algorithmic stablecoins – which use smart contracts to maintain price stability through supply adjustments.

Market leading stablecoins include Tether (USDT) despite its transparency concerns, USD Coin (USDC) which offers regular audits and regulatory compliance, and MakerDAO's DAI which provides decentralized stability through cryptocurrency collateral. 

Each represents different approaches to achieving price stability with varying degrees of centralization and risk.

Stablecoin advantages may include reduced volatility enabling their practical use as medium of exchange, seamless integration with DeFi protocols and faster settlement than traditional banking. The key disadvantages include counterparty risks with centralized issuers, regulatory uncertainty and potentially depegging during market stress.

Common use cases include cryptocurrency trading pairs, cross-border payments, DeFi lending and borrowing and as a store of value during market volatility. Stablecoin prices are mainly driven by a focus on maintaining the peg through reserve management, market confidence in its backing assets, regulatory developments and demand from trading and DeFi activities.

5. Memecoins

Memecoins are cryptocurrencies inspired by internet memes, jokes, or cultural phenomena, often lacking serious utility but driven by community enthusiasm and social media buzz. These tokens typically originate from online communities and gain value through viral marketing rather than any fundamental technological innovation.

Prominent examples include Dogecoin (DOGE), originally created as a Bitcoin parody based on the Shiba Inu breed, which gained mainstream attention through celebrity endorsements and social media campaigns. Shiba Inu (SHIB) later emerged as a ‘Dogecoin killer’, after which countless dog-themed tokens have continued to flood the market.

Advantages include the potential for explosive returns during viral moments, strong community engagement and cultural relevance, a lower barrier to entry for new cryptocurrency users, and the entertainment factor that attracts broader audiences to crypto. 

However, the very significant disadvantages include extreme price volatility, a total lack of underlying utility or technology, the high risk of pump-and-dump schemes and a susceptibility to celebrity influence and social media manipulation.

The core use cases include speculation, community building and cultural expression, with many holders viewing memecoins as a way to participate in internet culture through the financial markets.

Memecoin prices depend on social media trends, celebrity endorsements, viral content creation, community growth metrics, and overall risk appetite in cryptocurrency markets. Memecoins often experience massive price swings based on tweets, memes or cultural events with little connection to any fundamentals.

6. Payment cryptocurrencies

Payment cryptocurrencies are designed for peer-to-peer transactions, based on speed, low costs and ease of use over other blockchain functionalities. They aim to serve as practical alternatives to traditional payment methods and fiat currencies for everyday transactions.

Key examples include Litecoin (LTC) offering faster block times and lower fees than Bitcoin, Bitcoin Cash (BCH) created to improve Bitcoin's transaction capacity, Ripple (XRP) which focuses on cross-border banking settlements and Stellar (XLM) which targets remittances. Each implements different technical approaches to optimize payment functionality.

Their advantages may include faster transaction processing compared to traditional banking systems, significantly lower fees for international transfers, 24/7 availability without banking hour restrictions and financial inclusion for unbanked and underbanked populations. Their cross-border payment features are particularly useful as it eliminates the need for intermediary banks and currency conversions.

However, they can be volatile and suffer from limited acceptance compared to traditional payment methods. There’s also some regulatory uncertainty in many jurisdictions, and because network effects favor established players, adoption can be challenging for new tokens.

Key use cases focus on remittances, cross-border commerce, micropayments for digital content and peer-to-peer transfers. Some, like XRP, target specific niches like banking partnerships or developing market access, like XLM.

Payment cryptocurrencies prices move based on transaction volumes and merchant integration, regulatory developments, competition from central bank digital currencies and partnership announcements with financial institutions.

7. Privacy coins

Privacy coins prioritize transaction anonymity and financial privacy through advanced cryptographic techniques that obscure sender identities, recipient addresses and transaction amounts. They are designed to address growing concerns about financial surveillance and data privacy in traditional finance.

Leading privacy coins employ different anonymity technologies. Monero (XMR) uses ring signatures and stealth addresses to hide transaction details by default, while Zcash (ZEC) offers optional privacy through zero–knowledge proofs called zk–SNARKs and Dash utilizes CoinJoin mixing services for enhanced privacy. 

Their advantages include strong financial privacy protection, resistance to censorship and surveillance, fungibility where all coins are equivalent regardless of history and a strong appeal for users living in authoritarian regimes.

However, their significant disadvantages include regulatory scrutiny and potential bans due to an association with illicit activities, occasional exchange delistings, their higher technical complexity and slow adoption by mainstream institutions. In particular, many governments view privacy coins as potential threats to financial oversight and tax collection.

Use cases span legitimate privacy needs including protection from corporate surveillance, personal security in high risk regions, business transaction confidentiality and the preservation of financial privacy rights. Unfortunately, these use cases also apply to darknet markets and money laundering.

A privacy coin’s popularity is usually based on regulatory developments and exchange policies alongside broader cryptocurrency market acceptance of privacy as fundamental right versus regulatory compliance pressures.

8. Store-of-value cryptocurrencies

Store-of-value cryptocurrencies function are designed to preserve wealth over time, similar to precious metals like gold or other traditional stores of value. These cryptocurrencies emphasize stability, scarcity and long term value preservation rather than transactional efficiency or smart contract functionality.

Bitcoin dominates this category as perceived ‘digital gold,’ based on its fixed supply cap, network security and first mover advantage. Other examples include tokenized gold projects like PAX Gold (PAXG) and Tether Gold (XAUT) that represent ownership of physical gold reserves. Some also view Ethereum as evolving into a store of value through its deflationary mechanisms after the Merge.

Key advantages include their potential hedge against inflation and currency debasement, portfolio diversification beyond traditional assets, their 24/7 market access and global liquidity and independence from centralized financial systems. 

However, they can be volatile, which undermines the short term value preservation thesis, while regulatory uncertainty may affect their long term viability, and technological risks including network attacks or protocol failures can make them less suitable for some investors than traditional stores of value.

Primary use cases include wealth preservation during economic uncertainty, portfolio diversification for institutional and retail investors, cross-border value transfers and protection against currency devaluation in unstable economies.

Their price drivers include inflation rates and monetary policy, institutional adoption trends, network security and technological developments and overall sentiment toward risk assets versus traditionally relied-up assets during times of economic turbulence.

9. Infrastructure cryptocurrencies

Infrastructure cryptocurrencies power blockchain networks that support dApps, smart contracts and other blockchain services. These tokens serve as the backbone of Web3 technology, providing computational resources, security and network functionality.

Layer-1 examples include Ethereum (ETH) hosting thousands of decentralized applications, Solana (SOL) offering high speed transactions for DeFi and NFTs, Binance Smart Chain (BNB) providing low-cost Ethereum alternatives, Cardano (ADA) emphasizing academic research and sustainability and Polkadot (DOT) which enables blockchain interoperability.

Layer-2 solutions build upon existing blockchains to improve scalability and reduce costs. Examples include Polygon (MATIC) which scales Ethereum through sidechains, Optimism and Arbitrum which use optimistic rollups and the Lightning Network which enables faster Bitcoin payments. 

Advantages include essential utility for blockchain ecosystem growth, the potential for significant returns as adoption increases, first mover advantages in emerging sectors and strong network effects favoring established platforms. 

Key disadvantages include intense competition between platforms, technological risks from bugs or attacks, the high development complexity and a dependence on broader cryptocurrency adoption. In particular, many projects face challenges delivering promised scalability improvements.

Use cases center on providing computational resources for smart contracts, securing networks through staking mechanisms, paying transaction fees, and enabling cross-chain communication. 

Price drivers include network activity metrics, developer adoption, technological milestones, partnership announcements and competitive positioning relative to alternative platforms.

10. Financial/DeFi cryptocurrencies

Financial or DeFi cryptocurrencies power protocols that recreate traditional financial services without intermediaries, using smart contracts to automate lending, trading, insurance and other financial functions. These tokens typically serve governance and utility functions within their respective protocols.

Popular examples include Aave (AAVE) which governs a leading lending protocol, Uniswap (UNI) which powers the largest decentralized exchange, Compound (COMP) which enables algorithmic interest rates and MakerDAO (MKR) which backs the DAI stablecoin system. 

Core advantages include governance rights allowing token holders to influence protocol development, potential revenue sharing from protocol fees, exposure to the rapidly growing DeFi sector and utility benefits like reduced trading fees or enhanced yield opportunities. 

However, disadvantages include smart contract risks including bugs and exploits, regulatory uncertainty around DeFi protocols, high competition between similar projects and dependence on broader DeFi adoption. Many tokens face selling pressure from team unlocks and liquidity mining rewards.

Primary use cases include protocol governance voting, fee reduction benefits, collateral for borrowing, liquidity provision incentives and speculation on DeFi growth. Some tokens also provide insurance against protocol risks.

These coins are price driven on Total Value Locked (TVL) in protocols, trading volumes and fee generation, governance proposals and protocol upgrades, regulatory developments affecting DeFi and partnership announcements. Protocol token economics and emission schedules also significantly influence supply and demand dynamics.

11. Service cryptocurrencies

Service cryptocurrencies are the native tokens of platforms providing specific services within the cryptocurrency ecosystem, including exchanges, payment processors and financial service providers. These tokens typically offer utility benefits, fee discounts or governance rights within their respective platforms.

Key examples include CRO, which powers a comprehensive crypto ecosystem including the exchange, debit cards and DeFi services, and Uniswap (UNI) which governs the leading decentralized exchange protocol.

Advantages include direct utility within popular platforms creating consistent demand, fee reduction benefits for active users, potential revenue sharing from platform success and strong user bases providing network effects. 

However, disadvantages include platform-specific risks including regulatory issues or business failures as demonstrated by FTX's collapse, the intense competition between service providers, a dependence on platform adoption and user growth, and potential regulatory challenges for centralized platforms. 

Use cases focus on trading fee reductions, platform governance participation, staking rewards, payment for platform services and the ability to access premium features or products. Some tokens also provide insurance benefits or better customer support.

Price drivers include platform user growth and trading volumes, regulatory developments affecting platform operations, competitive positioning against rival services, new product launches and partnerships, token burn mechanisms reducing supply and perhaps most importantly, overall cryptocurrency market activity driving increased platform usage.

12. Media and entertainment tokens

Media and entertainment tokens power blockchain based gaming, virtual worlds and digital content platforms, representing the intersection of cryptocurrency and interactive entertainment. These tokens enable in-game economies, virtual asset ownership and the monetization of digital experiences.

Leading examples include Axie Infinity (AXS) which governs a popular play to earn gaming ecosystem, The Sandbox (SAND) which powers a voxel-based virtual world, Decentraland (MANA) which enables virtual real estate ownership, and Enjin (ENJ) which facilitates NFT creation and gaming asset management across multiple games.

Key advantages include exposure to the rapidly growing gaming and metaverse sectors, utility in increasingly popular virtual experiences, the potential for network effects as platforms gain users, and a strong appeal to younger demographics driving crypto adoption. 

However, disadvantages include a dependence on entertainment trends and user engagement, high competition in gaming markets, technological challenges in creating compelling experiences, and volatility related to platform success or failure. Many gaming projects struggle with sustainability and long-term player retention.

Primary use cases include purchasing virtual assets and NFTs, accessing premium game features, governance voting on platform development, staking for rewards and trading virtual goods. Their prices move on user engagement metrics like daily active users and time spent in–platform, new game releases and content updates, partnership announcements with gaming companies, broader metaverse and NFT market sentiment.

13. Non-fungible tokens (NFTs)

Non-fungible tokens represent unique digital assets that can’t be replicated or substituted, as each possesses distinct characteristics and ownership records stored on a blockchain. Unlike cryptocurrencies where each unit is identical and interchangeable, NFTs provide verifiable digital scarcity and ownership.

NFTs encompass diverse categories including digital art, collectibles, gaming items, virtual real estate, music and utility tokens providing access to exclusive content or experiences. Famous examples include CryptoPunks which was among the first successful NFT collections, the Bored Ape Yacht Club which combined art with membership benefits, and NBA Top Shot featuring official licensed basketball highlights.

NFT advantages include verifiable ownership for digital assets, programmable royalties benefiting creators from secondary sales, the potential for significant appreciation in valuable collections, and utility beyond speculation including access to communities, games or experiences. 

However, disadvantages encompass extreme price volatility and speculative bubbles, environmental concerns from blockchain energy usage, copyright and intellectual property complications, market manipulation risks, and questions about their long term value.

Use cases span digital art collection, gaming asset ownership, virtual world property, membership tokens for exclusive communities, music and entertainment collectibles and identity verification systems. 

NFT prices are driven by rarity and artistic quality, creator reputation and celebrity involvement, utility and community benefits, broader market sentiment, technological developments improving functionality and cultural trends influencing digital collectible demand. Floor prices of successful collections often establish value benchmarks for similar projects.

14. Security tokens

Security tokens represent digital securities that derive value from external tradable assets, providing blockchain-based ownership of real world investments like stocks, bonds, real estate or commodities. These tokens must comply with securities regulations, offering regulatory clarity but require extensive legal frameworks.

Examples include tokenized real estate platforms like RealT offering fractional property ownership, equity tokens representing company shares, bond tokens providing fixed income exposure and commodity tokens backed by physical assets. Each requires significant regulatory compliance and typically targets accredited investors.

Advantages include fractional ownership of expensive assets making investments accessible to smaller investors, 24/7 trading without traditional market hours, programmable compliance reducing administrative costs, global accessibility for international investors and transparent blockchain based ownership records eliminating the need for intermediaries.

Disadvantages include the complex regulatory requirements which vary by jurisdiction, limited liquidity compared to traditional securities, high compliance costs for issuers, technological risks from smart contract bugs and regulatory uncertainty as frameworks continue evolving. 

Primary use cases focus on democratizing access to investments, enabling programmable dividend distributions, creating liquid markets for traditionally illiquid assets like real estate and reducing settlement times and costs for securities trading.

Price drivers include underlying asset performance, regulatory developments affecting security token legality, platform adoption by institutional issuers, technological improvements in compliance automation and the broader acceptance of tokenized securities by traditional financial institutions. 

15. Central bank digital currencies (CBDCs)

Central bank digital currencies are government issued digital versions of national currencies, combining blockchain technology benefits with central bank oversight and monetary policy control. CBDCs aim to modernize payment systems while maintaining government authority over the monetary supply.

Emerging examples include China's Digital Yuan (e-CNY) which is currently in advanced pilot testing, the European Central Bank's planned Digital Euro, the Federal Reserve's ongoing research, and smaller nations like the Bahamas' Sand Dollar already in circulation. 

Advantages include improved payment system efficiency and financial inclusion for unbanked populations, better monetary policy transmission, reduced cash handling costs, programmable money enabling automatic tax collection or stimulus distribution and the maintenance of sovereign monetary control against private cryptocurrency competition.

However, the big problem is privacy concerns due to government transaction monitoring, the potential elimination of cash reducing financial privacy, cybersecurity risks from centralized systems, competition with commercial banks potentially disrupting traditional banking and technical implementation challenges requiring massive infrastructure updates.

Use cases center on domestic payments, cross border transfers, government benefit distribution, tax collection automation and financial inclusion initiatives. Some CBDCs target wholesale banking systems while others focus on retail consumer payments.

Price drivers for investible CBDC-related tokens include regulatory announcements and pilot program results, technological milestones in implementation, international cooperation agreements, competitive pressures from private cryptocurrencies and broader central bank digital currency adoption trends. Most CBDCs themselves maintain stable value pegged to the currency of the central bank in question.

16. Governance tokens

Governance tokens provide holders with voting rights in decentralized protocols, enabling community driven decision-making about protocol parameters, upgrades, treasury management and strategic direction. 

Common examples include MakerDAO (MKR) which governs the DAI stablecoin system with voting rights on collateral types and stability fees, Curve (CRV) which enables votes on liquidity mining rewards and protocol parameters, Compound (COMP) which allows governance of lending protocol interest rates and Aave (AAVE) which provides voting power over lending protocol risk parameters.

Advantages include direct influence over protocol development and parameters, potential revenue sharing from protocol success, alignment between token holders and protocol health, community-driven innovation and democratic alternatives to centralized project control. 

However, low voter participation can reduce governance effectiveness, and there is the potential for whale manipulation where large holders control decisions. Complex governance processes also require significant technical knowledge.

Primary use cases focus on voting on protocol upgrades, setting fee structures and interest rates, managing protocol treasuries, selecting grant recipients for ecosystem development and determining tokenomics parameters like inflation rates or reward distributions.

Governance tokens are moved by proposal outcomes, voter participation rates which indicate community engagement, protocol revenue and total value locked growth, regulatory developments around governance token treatment and competitive positioning relative to alternative protocols serving similar functions.

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FAQs on types of cryptocurrencies

What are the main types of cryptocurrencies?

Coins (like Bitcoin), tokens (utility, governance, security), stablecoins, privacy coins and DeFi tokens.

What are the biggest cryptocurrencies by market cap?

Bitcoin (BTC), Ethereum (ETH) and Tether (USDT) are often the largest three.

How many types of cryptocurrencies exist?

Over 20,000 cryptocurrencies, though only a few hundred enjoy significant adoption and liquidity.

What’s the difference between coins and tokens?

Coins run on their own blockchain while tokens are built on top of another blockchain.

What are stablecoins used for?

By maintaining a stable value, they enable trading, payments and hedging against volatility.

What is a privacy coin?

A cryptocurrency that hides transaction details, which is valued for financial privacy but often scrutinized by regulators.

What are DeFi tokens and how do they make money?
Tokens powering Defi apps. Holders earn through staking, lending, liquidity provision or governance rewards.

Important information: This is informational content sponsored by Crypto.com and should not be considered as an investment recommendation. Trading cryptocurrencies carries risks, such as price volatility and market risks. Before deciding to trade cryptocurrencies, consider your risk appetite. 

Although the term "stablecoin" is commonly used, there is no guarantee that the asset will maintain a stable value in relation to the value of the reference asset when traded on secondary markets or that the reserve of assets, if there is one, will be adequate to satisfy all redemptions.