Cryptocurrencies are digital or virtual assets designed to work as a medium of exchange. They are built upon peer-to-peer networks called blockchains, and often serve a specific use case. Their purposes can range from facilitating instant cross-border transactions to providing investment opportunities and even perks for community members. In this article, we will look at some of the types of cryptocurrency and their examples.
- Payment cryptocurrencies
- Infrastructure cryptocurrencies
- Security tokens
- Community reward tokens
- Crypto finance
- Olymp Trade for crypto traders
Interact with the underlined words and green dots to get additional details and explanations.
Explanations and definitions of terms.
Payment cryptocurrencies 💸
A payment cryptocurrency is a digital or virtual currency used as a means of payment. Payment cryptocurrencies generally lack a central point of control and are often anonymous, making them a popular choice for those looking to make online purchases or send money to others without going through a financial institution.
Bitcoin — the first of its kind and the most well-known payment cryptocurrency — was created in 2009 and has since become a recognized symbol of cryptocurrency across the world. It is the preeminent cryptocurrency, not only because it has become a household name, but because its price movements can affect the entire crypto market. There are around 19 million Bitcoin in circulation today, and 21 million will ever exist, hence some consider Bitcoin as a store of value, like gold. Since its launch, other cryptocurrencies that build on the ideas set out in the Bitcoin whitepaper have been developed, including Ethereum and Litecoin.
Ethereum is a blockchain platform that allows developers to build decentralized applications (dApps) on it, and Ether is the cryptocurrency of the network. Developers can build a wide range of digital applications on the Ethereum platform, from gaming programs to tokenized assets and social media platforms.
Litecoin, created in 2011, is a peer-to-peer cryptocurrency that was based on Bitcoin’s source code. It is used as a medium of exchange for peer-to-peer transactions and, like Bitcoin, has a limited amount of tokens (84 million) that can ever be mined.
Stablecoins are a type of cryptocurrency whose value is pegged to another asset, such as a fiat currency or commodity. They experience low volatility, thus serving purely as a means to facilitate payments, rather than doubling as an investment like the above three tokens can. The biggest stablecoin by market cap is Tether (USDT), which is pegged to the United States dollar and can be deposited and withdrawn on Olymp Trade.
Infrastructure cryptocurrencies ⛓️
Some cryptocurrencies are infrastructure cryptocurrencies that are part of a blockchain designed to provide a foundation or underlying layer that other applications and services are built upon. These often have their own ecosystems, with multiple other dApps and services built on top of the first network layer and functioning via smart contracts. Examples of this include Ethereum, Cardano and Solana. Infrastructure cryptocurrencies can often come in the form of utility tokens, which serve a certain function or utility within a project’s ecosystem, such as financing startup projects, facilitating a bank’s internal transactions, or providing products, services and privileges to users. Infrastructure cryptocurrencies and their underlying blockchains make up the technological backbone of the incoming Fourth Industrial Revolution.
Security tokens 💼
Security tokens are the most similar asset in the crypto market to traditional stocks. They represent ownership in a company or project, or are pegged to another asset of value. Security tokens are similar to utility tokens in that they can be used to pay for goods and services on a blockchain platform, and examples of such are Flexa’s AMP token, which facilitates collateralization of asset transfers, and the Rally network’s RLY token, which enables holders to create their own cryptocurrencies. However, it is not currently set in stone which crypto are considered securities and which are not, with the United States Securities and Exchange Commission adding more tokens to their securities list every year. Being classed as a security often brings insurmountable regulations for smaller projects to adhere to as well as opens them up to being hit with large-scale fines for previous token sales, so many strive to avoid this classification at all costs.
Security tokens may also give token holders voting power in proof-of-stake protocols or the right to future profits from the platform they invested in.
Community reward tokens 🦷
Most blockchains have a community of users supporting them. Depending on the platform, community members may be encouraged to voice their opinions on the direction that the project could take, socialize or take part in certain activities, receiving the blockchain’s native crypto as a reward. One example of the latter is Dentacoin, a blockchain aiming to boost dental hygiene habits across the world and provide a more efficient way of tracking and managing dental care data. The Dentacoin token is used to reward users for their participation in the network and incentivize them for taking better care of their dental hygiene. Like all cryptocurrencies, each Dentacoin token has a value, and can be traded for other crypto in order to liquidate for cash.
Crypto finance ✅
Crypto finance is the process of using cryptocurrency to facilitate financial transactions. This can include using cryptocurrency to purchase goods and services, or trading cryptocurrency for other assets. Crypto finance can also refer to the use of cryptocurrency to provide financing for businesses or projects. Crypto finance is primarily made possible by blockchain technology. Using blockchain to facilitate transactions means that any digital transaction is verified, tracked and recorded on a decentralized ledger. This type of ledger is considered more secure than traditional methods because it can store large amounts of data without loss of integrity or corruption.
Why crypto finance works
Cryptocurrency is the predominant medium of exchange in the crypto finance world, where it can be used to purchase or sell goods and services. Cryptocurrency can also be traded for other assets or converted into fiat currency — cash, or legal tender — using third-party exchanges. Traditionally, the trading of one asset for another has involved paper receipts or money transfers through banks and other financial institutions. The ability to conduct these types of transactions using cryptocurrency means that financial transactions are conducted more efficiently and securely, eliminating the need for a middle-man and allowing users to have autonomous control over their finances. It is this very idea of a self-sovereign financial future that fuels the decentralized finance sector. With a market capitalization of nearly $47 billion, the sector is home to humanity’s most innovative ideas that push the boundaries of what we know as finance and solving age-old problems in unprecedented ways. Already, multiple solutions that were born in the DeFi sector have been adopted by some of the world’s largest financial institutions.
Olymp Trade for crypto traders 😎
Whether as a means of making digital payments or as an underlying technology supporting the next industrial revolution, crypto is here to stay, and Olymp Trade is here for it. Our platform is making waves in the industry, offering a variety of features that include cutting-edge technology, intuitive design, and a wide range of tools and indicators. Traders are provided with fundamental analysis and technical analysis tools for making decisions, and are guided step by step in their trading journey by our experts, guides and educational materials. Now that you know the different types of crypto and what purposes they serve, it’s time to jump right in and become a force to be reckoned with in the crypto space.
Risk warning: The contents of this article do not constitute investment advice, and you bear sole responsibility for your trading activity and/or trading results.
Networks that are hosted by multiple computers or nodes, where each acts as a server for the others to facilitate transactions.
An asset that retains its utility, value and purchasing power, no matter the market conditions.
A report that explains an issue in-depth and presents a philosophy and/or solution to the matter. Crypto whitepapers also explain the underlying technology of the project or solution.
An autonomous mechanism built into a blockchain that executes code based on: “If A, then B.”
A blockchain consensus mechanism whereby new blocks are mined via validators, based on the amount of respective tokens they hold.