There are many different types of cryptocurrencies out there, each one offering its own unique features and benefits. But it can be difficult to differentiate between them, especially for a nascent investor looking to get started in this new market.
The first digital currency to make an impact was Bitcoin in 2009. This decentralized coin, which is based on blockchain technology, made peer-to-peer money transfers possible without the need for third parties. It is also independent of any government or central bank, a characteristic that helped it become the foundation of the crypto world today.
Another key feature of Bitcoin is its public ledger. This is a digital record that shows every transaction ever made on the Bitcoin network, making it easier to track and verify all Bitcoin transactions and prevent tampering with the coin.
Aside from Bitcoin, other well-known cryptocurrencies include Ripple (XRP), Binance Coin (BNB) and Litecoin (LTC). All of these are built on the same blockchain technology as BTC but offer some differences in terms of functionality or value.
Stable Tokens
These are tokens that are backed by an asset with relatively stable value, like fiat currencies or gold and other precious metals. They can help investors avoid the wild price swings that are common in other coins.
They can also be used to settle transactions. For example, XRP is a crypto that allows for international payments between different currencies. Similarly, DAI is a collateral-backed stablecoin that uses smart contracts to maintain roughly a one-to-one price ratio with the U.S. dollar.
Utility Tokens
These tokens are created on a platform that runs on the blockchain and serve as an exchange or a store of value. They can be used for a variety of purposes, from buying goods to renting computing power. Examples of utility tokens include Golem (GNT), Civic (CVC), Basic Attention Token (BAT) and 0x (ZRX).
Payment Tokens
A payment token is a digital currency that functions primarily as a means of payment on a digital platform. They are often designed to be used as a form of payment for products and services that cannot be offered through traditional financial institutions, such as online shopping websites.
The majority of cryptocurrencies and tokens fall into this category. These can be regulated as asset securities, and may or may not guarantee a user a specific product or service now or in the future.
They can be backed by a physical asset, such as gold or oil, and are typically used to pay for goods and services. These types of tokens can be a great way to diversify your cryptocurrency portfolio.
Meme Coins
These are crypto tokens that are branded around a particular trend or joke. They are sometimes called cult assets, and they have gained a lot of traction in the crypto space.
While these coins are popular, they can be risky and can go bust at any time. Nascent investors should stay away from these assets, as they are usually speculative and can lose their value quickly.