If you are new to crypto, we will talk about the cryptocurrency types of for you. You may be wondering, how do smart people understand such a diverse ecosystem? With so many options, how do you distinguish one crypto asset from another?
Truth be told, most traders and investors have their own special classification system.
However, there are more popular options. For example, the most widely used method ranks crypto assets according to how they should be used. This is not a perfect system. In fact, the debate continues as to whether there are different types of cryptocurrencies.
For example, all cryptocurrencies may be competing to become digital money only. In this case, there can only be one type of cryptocurrency.
However, the purpose of this article is to classify cryptocurrencies. So you can get an idea of how these systems work and why they can be helpful as you build and diversify your crypto portfolio.
The following categories were created using methodology by Messari, a leading aggregator of data and information for the crypto-asset industry.
Payment cryptocurrencies can be thought of as digital coins operated by a distributed network of computers running shared blockchain software. Some focus on competing with fiat money, while others focus on payments for a particular use case or industry.
Cryptocurrency networks aimed at disrupting payments typically lack many features other than those needed to identify, transfer, record and secure transactions on the network.
Some may see Bitcoin, the original cryptocurrency, as a good example of a payment cryptocurrency, as it was designed as an alternative to traditional fiat currencies.
Most other existing payment cryptocurrencies try to improve Bitcoin in various ways, from scalability to speed.
Asset-backed cryptocurrencies can also be classified as payment cryptocurrencies.
These cryptoassets are often pegged to more traditional assets. And it offers the efficiency and transparency benefits of cryptocurrency while providing price exposure to more established forms of value.
Infrastructure cryptocurrencies are typically used to pay computers responsible for running programs on a shared blockchain software network.
For example, the crypto asset that powers Ethereum is called ether. And it can be considered an infrastructure cryptocurrency, as people need to buy it in order to build and use decentralized applications that run on the network.
There are many blockchain platforms that provide different use cases. And each of them requires its own infrastructure cryptocurrency.
Tokens that focus on interoperability can also be classified as infrastructure cryptocurrencies. Their goal is to provide a way to connect multiple blockchains. And it is to allow users to transact between these networks.
Financial cryptocurrencies can help users manage or trade other crypto assets.
For example, a financial cryptocurrency allows a user to trade on a decentralized exchange. Or it can help him make decisions about how to operate it. Another financial cryptocurrency can be used to crowdfund money by connecting early-stage crypto projects and investors.
More complex financial cryptocurrencies may even attempt to replicate financial services such as market making or lending and borrowing. Also, prediction markets cryptocurrencies provide a way to speculate about the outcome of certain events.
Service cryptocurrencies can offer tools for managing personal or corporate data on the blockchain. What they have in common is that they help blockchain-based financial products access and vet external data sources.
Many services cryptocurrencies work to provide users with digital identities. And it works to connect real-world records of individuals to the blockchain.
There are many use cases for combining blockchain technology with real world applications. These can range from cryptocurrencies (e.g. Dentacoin) that offer a variety of services for the healthcare industry to cryptocurrencies (e.g. Storj, Siacoin) that offer file storage services.
Media & Entertainment Cryptocurrencies
As the name suggests, media and entertainment cryptocurrencies seek to reward users for content, gaming, gambling or social media.
For example, a media and entertainment cryptocurrency like Basic Attention Token aims to better distribute value fairly to creators and consumers.
Finally, media and entertainment cryptocurrencies are also used to power digital worlds accessed through virtual and augmented reality technologies.
In this article, we talked about the Cryptocurrency Types, stay tuned.