Types of crypto currency are divided into seven categories on the basis of use.
What gives cryptocurrencies their value? This is a question you’ve heard before and it’s probably asked at some point too. The short answer is that it depends on which type of cryptocurrency or token you’re talking about. There are over 7000 cryptocurrencies and each of them has its own purpose or use case that gives value to it. Most cryptocurrencies fall into categories such as stores of value, smart contracts, oracles payments, privacy, exchange tokens, and meme coins.
Knowing which category crypto falls into is crucial if you’re investing in the crypto market. This is because each crypto category has its own pros and cons. They also tend to pump and dump at different points during a bull market. So this article is about these crypto categories and how you can use this knowledge to maximize your gains and minimize your losses.
Types of crypto currency
Types of crypto currency include Store of value cryptocurrency, Smart Contracts cryptocurrency, Oracle cryptocurrency, Payment cryptocurrency, Privacy cryptocurrency, Exchange Tokens, Meme coins. Types of Cryptocurrency are explained below in detail.
1. Store of value cryptocurrencies
The first type of cryptocurrency is a store of value. As the name suggests store of value cryptocurrencies are designed to hold or even increase their purchasing power over time. This typically translates to a gradual increase in price over time. Price and purchasing power are two very different things. Every year regular currencies lose between 2-3% of their purchasing power because governments around the world are constantly printing money to stimulate economic growth. This means that if you bought a stock that went up 2-3% last year, the purchasing power of that stock didn’t actually change even though its dollar value has increased. The more money the government prints the more it loses its purchasing power and this is a big part of why cryptocurrencies were invented.
Bitcoin was created in 2009 as a response to the 2008 financial crisis. Specifically, the money printing by governments followed in its wake while bitcoin is the only cryptocurrency that falls into the store of value category. Unlike regular currencies that have an infinite supply and lose purchasing power every year due to printing, bitcoin has a maximum supply of just 21 million BTC. This 21 million BTC is created gradually over time by miners who solve complex equations to process transactions on the bitcoin blockchain and earn BTC as a reward. As anyone can mine bitcoin and earn BTC for processing transactions. This has created a decentralized payment network consisting of millions of computers that are spread around the world.
Bitcoin is technically the most secure payment network on the planet. Because of these economic incentives, there is no single place you could go to shut it down. Bitcoin was originally designed to be digital cash its economics combined with its relatively slow transaction speed has made it more like digital gold than digital cash. In the context of the crypto market bitcoin is the largest cryptocurrency by market cap and almost every other cryptocurrency’s price is dependent on bitcoin’s price.
If bitcoin is crashing everything else crashes. If bitcoin’s price is staying more or less the same or moving up gradually then all the other cryptocurrencies pump. The Primary Benefit of the store of value cryptocurrencies is that they are usually much safer investments compared to other cryptos. They are likely to go up in dollar value over time. In fair launch, a community collectively starts mining that cryptocurrency from the beginning.
An easy way to check if a store of value crypto is the real deal or not is to see how its supply is distributed using a blockchain explorer. In the case of bitcoin and Litecoin, both cryptocurrencies have quite equitable distributions. The primary disBenefit of the store of value cryptocurrencies is that they often have very limited functionality. This is why some people refer to bitcoin as a pet rock. Store of value cryptos doesn’t do much besides protecting purchasing power over time and making it possible to send that purchasing power to other people without a middleman. This limited functionality is the reason people believe bitcoin will eventually not be the largest cryptocurrency by market cap.
2. Smart Contract cryptocurrencies
the second type of cryptocurrency is the smart contract. Smart contract cryptos are designed to be programmable with less emphasis on storing value. This is valuable if you’re watching a video on your computer or your phone you’re using an application of some kind to do it. The browser or mobile applications you use every day are centralized. They were created by someone usually a tech giant who has total control over that browser or app. These applications are also not very secure. Someone could hack or modify the application in some way to steal your data, money, identity, etc. Those tech giants are always watching you too. The same goes for the financial services you use whether you’re saving, spending, borrowing, or trading you always have to do it through a centralized platform or services like a bank or broker.
Smart contract types of crypto currency offer a radical alternative to the digital and financial infrastructure. This alternative is referred to as web3, an evolution of the current web2 internet. Smart contracts are basically programs that do something automatically when a certain set of conditions is met. The coolest part about smart contracts is that they can be used to create different types of cryptocurrency tokens that are fungible like a regular currency or non-fungible like a rare baseball card. The difference between smart contracts and regular programs is that smart contracts are immutable and decentralized. In other words, you cannot modify the smart contract once it’s been created and it’s impossible to shut it down because it exists on a massive network of computers spread around the world.
when you combine multiple smart contracts together you get a decentralized application (Daap). There are decentralized applications for everything including payments, trading, lending, borrowing, and even gambling. No personal information is required to use Dapps, All you need is an internet connection. The best part about Dapps is that there’s no middleman taking a cut or stealing your data. All the transactions in Dapps happen directly from person to person and your activity is essentially private.
There are over 5000 apps with millions of users on about two dozen smart contract cryptocurrency blockchains mainly Ethereum and the Binance smart chain. In contrast to the store of value cryptocurrencies, smart contract cryptos get their value from their utility as payment for smart contract and Daap transactions. Sor Ethereum these fees are paid in ETH, for the Binance smart chain these fees are paid in BNB, and so on. To make sure there is always enough cryptocurrency on the market to pay for transaction fees. Most smart contract cryptocurrencies do not have a maximum supply instead they have annual inflation schedules that can go well into the double digits depending on certain network conditions. This printing of coins normally isn’t a problem if there are enough Daap users buying up the coin to pay the fees required to use them.
The Primary Benefit of smart contracts types of crypto currency is that their value is tied to the size and adoption of the Daap and token ecosystems built on their blockchains. ETH and BNB had market caps of billions with only a couple of million users on Ethereum and the Binance smart chain. If the adoption of smart contract cryptocurrencies continues at the rate then their associated coins could have market caps in the trillions of dollars by the end of the decade. The only problem there is that you don’t know which smart contract cryptocurrency will be the winner and that’s the primary disBenefit of smart contract cryptos. There is a lot of competition in the smart contract types of crypto currency and new projects make it to the market almost every month. Do research before investing in any smart contract.
3. Oracle cryptocurrencies
The third type of cryptocurrency is oracle. Oracle cryptos make it possible to bring real-world data to smart contract cryptocurrency blockchains. Most of the applications you use every day require some sort of real-world data like the date and time or the price of something you’re buying or selling. Centralized applications will use centralized data fees called APIs that are provided to them by another centralized entity. For example, the weather network will provide the API data required for Facebook to tell you what the weather is like in your area.
Similarly smart contract cryptocurrency blockchains need real-world data for their Dapps to have real-world use cases. This data comes from oracle cryptocurrencies the difference between data feeds like APIs and oracle cryptocurrencies are the data feed that oracle cryptos provide is decentralized. The way this normally works is that dozens of individuals or institutions will tell oracle crypto what the price of something is and the oracle will use the average of their answers. Like smart contract cryptocurrency coins, oracle crypto tokens are required to pay for the fees associated with fetching this data.
The chainlink is now the most popular and widely used oracle cryptocurrency on the market. There are a dozen or so other oracle cryptos, including band protocol and API 3. The main benefit of oracle cryptos is that demand for their tokens is expected to rise with the number of smart contracts, Dapps, and users. The main downside of oracle cryptos is that almost all of them have given their teams and private investors a large portion of their pre-mined token supply. This means that as their prices rise, those teams and private investors have a strong incentive to sell. For its Daap data, most smart contracts types of crypto currency use numerous oracles.
4. Payment cryptocurrencies
The fourth type is payment cryptocurrency. Payment cryptos aim to replace the current payment systems we use today and sometimes use smart contract technology to do this. If you’ve ever sent money overseas you know how expensive and slow it can be. if you run a business you’ll know how much money payment processors like visa MasterCard and PayPal take from each transaction. If you’ve ever had a payment issue you know how many hoops you have to jump through to sort it out with your bank.
Most of us even pay monthly fees just to have a bank account or credit card no matter if it involves moving money there is a middleman somewhere taking a cut slowing things down and adding complication to processes. Cryptocurrencies make it possible to finalize transactions within seconds at a fraction of the cost, not only that but as with other cryptocurrencies, any payment focus coins or tokens can be kept on your own personal wallet. You don’t have to rely on a bank to store your funds and you don’t have to worry about anyone messing with your bank account or blocking incoming or outgoing payments.
Bitcoin Cash, Dash, and Telcoin are all popular payment cryptocurrencies. Some of these types of crypto currency have complex smart contracts and payment-focused Daap ecosystems. The primary benefit of payment cryptocurrencies is that they have the best possibility of becoming popular and marketable. In Argentina, Dash is already widely used for payments, and Telcoin’s low-cost remittance services have recently gained a lot of traction. The main disBenefit of payment cryptocurrencies is that it is incredibly unlikely that any payment crypto coin or token will ever replace traditional currency. The majority of payment cryptocurrencies do not have stable pricing, and governments have demonstrated that they would act to prevent users from using them as payment.
5 Privacy cryptocurrencies
The fifth type is privacy cryptocurrency. The privacy cryptos are designed to preserve your privacy when making transactions or using Dapps. Although you may believe that cryptocurrency transactions are secret, this is not the reality. Because almost all cryptocurrency blockchains are publicly available, you may check every transaction in real-time while your identity is not automatically linked to your cryptocurrency wallet address. Finding out which cryptocurrency wallet addresses you own isn’t difficult. This is especially true if you purchased cryptocurrency through an app or exchange that requires your personal information. The wallets you use can easily be connected to your real-world identity.
It’s possible that you’re completely okay with this and think that all transactions should be fully transparent and verifiable by anyone. However, corporations and wealthy individuals beg to differ the last thing they want is for people to see how much money they’re packing in their cryptocurrency wallets. You as a user would want most of your data to be kept private when interacting with certain cryptocurrency Dapps. These are the issues that privacy cryptocurrencies seek to address and they come in all sorts of textures and flavors. Some privacy cryptos like secret networks make it possible to create privacy-preserving Dapps. Others like tornado cash make it possible to privatize your public transactions on Ethereum by mixing up your funds and sending them to a new wallet address with no transaction history.
Popular privacy cryptocurrencies like Monero and Zcash focus on private payments and use privacy technology. That’s so good that it can’t even be broken by the government. There’s even a privacy cryptocurrency called haven protocol that makes it possible to mint synthetic fiat currencies. cryptocurrencies and precious metals to create an untraceable digital offshore bank account. The main Benefit of privacy cryptocurrencies is that the majority of them are well-designed and built to last. Many of them also had a fair launch, with no pre-mines or greedy private investors. For example, XMR is identical to bitcoin in terms of store value and can be transacted as rapidly and cheaply as most payment cryptocurrencies. Monero also has a unique mining technique known as random x, which prevents specialized computers from mining XMR because anyone can do it. Monero’s decentralization grows as a result of this.
The biggest downside of these types of crypto currency is that they are typically targeted by regulators due to their use in illegal activities, or at least that is the main justification. As a result, privacy coins are frequently delisted from cryptocurrency exchanges, making them difficult to get. This may make it more difficult for them to raise their prices. Cross-chain decentralized exchanges like THORChain are on the point of allowing private cryptocurrencies like Monero and haven to be traded without the use of a centralized exchange. Furthermore, many privacy cryptos are built to comply with regulations by allowing users to show a regulator.
6. Exchange Tokens
The sixth type of cryptocurrency is exchange tokens. The exchange tokens are owned and operated by the cryptocurrency exchanges they belong to. Exchange tokens can be compared to a combination of a membership subscription and company stock. Exchange tokens are similar to membership due to the fact that they can provide you with a variety of benefits such as reduced trading fees, discounts, and VIP access to early coin and token sales. Exchange tokens are similar to company shares because their success is determined by the popularity of the exchange. Because almost every single exchange will do buybacks and burn some of the circulating supply of its exchange token using a portion of trading fees a buyback increases the price, the burn reduces the supply and the result is a cryptocurrency token that increases in value over time.
Some exchanges such as Binance have also built smart contracts. Cryptocurrency networks that require their exchange tokens to use this add another dimension of demand for those exchange tokens. Now obviously the primary Benefit of exchange tokens is that they are highly likely to go up in price the primary disadvantage of this type of cryptocurrency is that their gains do not come nearly as quickly as other cryptocurrencies, nor are these gains completely guaranteed. As cryptocurrency exchanges become more and more powerful regulators are slowly starting to push back. All it takes is a single negative announcement about an exchange to crash its token.
7. Meme coins
The last category of cryptocurrencies is meme coins. Most meme coins have no specific use case and exist for no other reason besides hype and a false promise of profit in the real world. If someone approached you and said that you’d become a millionaire by giving them a few hundred dollars, they’re talking nonsense. When the exact same idea is presented in the form of a cryptocurrency this impossibility, somehow magically becomes possible. This is because new and inexperienced cryptocurrency investors don’t understand the relationship between a meme coin’s market cap, supply, and dollar value. For example one Shiba Inu token costs around a thousandth of a cent without looking at the market cap you probably think if I invest just a few hundred dollars in Shiba and it goes up to a dollar then I will be a multi-millionaire.
The only issue is that Shiba Inu’s market capitalization is already in the billions. This is due to the fact that Shiba’s maximum supply is about 400 trillion. To get Shiba to $1, people would have to invest more than 4 times the total amount of money on the earth. Many of the meme currencies that have appeared in the last year have similarly large supplies. As a result, they are unlikely to reach $1 any time soon. The supply is deflationary, and its price will rise due to unique economics. Take a second to think about what the endgame of these meme coins really is? Any of these meme coins are not seriously planning some sort of NFT marketplace. Most meme coins exist for one purpose and that is to enrich their creators. You can try your luck riding that wave but the risk is not worth the reward.
Though dogecoin is different as far as meme coins go, dogecoin was created as a joke and one of the only reasons it survived in bear markets is because it can be merged mined with Litecoin at no additional cost. The danger with dogecoin is that there is a dogecoin whale that holds nearly 30% of all doge in circulation. If they start to dump its game over no matter how much Elon musk tweets. As far as primary Benefits go meme coins do in fact offer an easy way to make a quick buck. The primary disBenefit is that you never know when the pump will come or when it will end. This is because meme coins are the most manipulated type of cryptocurrencies on the market.
Based on these 7 Types of crypto currency, you can decide to invest your money in the valuable stock. The Store of value cryptocurrencies is good for long-term investment and Memo coins are the riskiest cryptos. Do complete research before going to invest Tips to Pick Best Cryptocurrecny