The world changed with the launch of Bitcoin in 2009. However, we could not have predicted that cryptocurrencies would grow so fast or that so many types of cryptocurrencies would emerge. So what are these types of cryptocurrencies that have emerged as the digital economy has developed rapidly? Today, there are almost 10,000 cryptocurrencies, and many of them have disappeared over time. In this article, we’ll explore the different types of cryptocurrencies and how prominent projects stand out from the rest. Join our guide to find out what types of cryptocurrencies exist and discover the differences between Bitcoin, Altcoins, NFTs, and more. Start learning about the different investment opportunities of the digital world now.
Cryptocurrencies and Tokens
Although cryptocurrencies and tokens are often used interchangeably, they are different.
Cryptocurrencies: A coin is the native cryptocurrency of a particular blockchain. For example, bitcoin is the currency of the Bitcoin blockchain network. Likewise, ether is the native currency of the Ethereum blockchain. Cryptocurrencies are the type of money needed to make transactions on the blockchain network.
Tokens: A token is a representation of ownership but operates on another blockchain. For example, the Aave token is used to vote on project proposals on the Ethereum blockchain. It is also involved in providing an insurance fund for users of the Aave borrowing and lending protocol. However, Aave does not have its own blockchain.
With the number of cryptocurrencies in the tens of thousands, it is important to know that most of them are tokens, not independent blockchains.
What are the types of cryptocurrency?
Cryptocurrencies are divided into several main categories, mainly Bitcoin, Altcoin, Token and NFT.
Bitcoin, the first cryptocurrency
Bitcoin, now a household name, was the first widely recognised cryptocurrency. The Bitcoin network uses proof-of-work (PoW) to secure transactions. In this system, miners need to solve the cryptographic hash to create the next block. When the miner succeeds, it creates the block and earns the block rewards.Bitcoin’s supply is limited to 21 million, and most of them have already been mined.
Altcoins are cryptocurrencies developed as an alternative to Bitcoin and offer different features. Projects such as Ethereum, Cardano and Solana are in this category.
Ethereum (ETH)
Ether is the cryptocurrency that runs the Ethereum network and is sometimes referred to as the ‘computer of the world’. Launched in 2015, Ethereum was the first blockchain network to enable smart contracts. These smart contracts run on the Ethereum Virtual Machine (EVM) and execute conditional commands such as ‘if this happens, then this is done’.
Tokens are digital assets that run on top of other blockchains and are usually used in a specific project or platform. For example, Aave or Uniswap tokens on the Ethereum network.
NFTs, on the other hand, represent unique assets, each of which is unique and immutable. They are used in areas such as artworks, collections and digital property.
These types of cryptocurrencies, each with different functions and uses, play important roles in the expanding ecosystem of the digital world.
Why Are There So Many Cryptocurrencies?
One of the main reasons why there are so many cryptocurrencies is the difference between coins and tokens. Tokens make up a large part of the crypto market and do not have their own blockchains. Instead, they use the infrastructure of other blockchains. Bitcoin was the first cryptocurrency to leave the theoretical stage and become actively used. The Bitcoin white paper published in 2008 led to the realisation of the blockchain in 2009, and Litecoin was launched in 2011. This project was a fork of Bitcoin’s code and aimed to improve some of Bitcoin’s inefficiencies, especially transaction speed. Litecoin creates new blocks four times faster than Bitcoin; while Bitcoin’s block time is 10 minutes, this time is 2.5 minutes in Litecoin.
How Many Types of Cryptocurrencies Are There?
The number of existing crypto projects is estimated to be about 10,000, and the question of what types of cryptocurrencies are important to understand this diversity in the market. Coingecko lists more than 24,000 different types of cryptocurrencies. However, almost 60% of the projects failed over time. Most of these failed projects were launched during the overly optimistic 2020-2021 bull run.
What is an altcoin and how is it different from Bitcoin?
Altcoin is short for ‘alternative coin’ and generally refers to cryptocurrencies other than Bitcoin. Altcoins encompass cryptocurrencies with different functions and features that have been developed as an alternative to Bitcoin. For example, Ethereum, unlike Bitcoin, supports smart contracts, while Bitcoin is used more as a store of value.