10 popular types of cryptocurrency and how they work
There are thousands of cryptocurrencies—but they’re not all the same. We reveal the 10 most popular types of cryptocurrency.
6 min read
The following statements do not constitute investment advice or any other advice on financial services, financial instruments, financial products, or digital assets. They are intended to provide general information. The following statements do not constitute an offer to conclude a contract for the purchase or sale of financial instruments and financial products or an invitation to submit such an offer and to buy or sell any particular digital asset. Cryptocurrencies are subject to high fluctuations in value. A decline in value or a complete loss are possible at any time. The loss of access to data and passwords can also lead to a complete loss.By now you might have heard that cryptocurrencies are digital currencies secured by cryptography. But how many types of cryptocurrency are there? It’s not just Bitcoin and Dogecoin making waves–there are actually thousands of cryptocurrencies in existence. In this article, we take a look at the top 10 (based on market capitalization), and give you some insight into other crypto assets you need to know about.
What are the different types of cryptocurrency?
While many cryptocurrencies share a blockchain-based infrastructure, there are some striking differences between them. Generally speaking, cryptocurrency can be clustered into two distinct categories: coins and tokens.
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A coin is any cryptocurrency that uses its own independent blockchain. For example, Bitcoin is considered a “coin” because it runs on its own infrastructure. Similarly, Ether is operated via the Ethereum blockchain. The term “altcoin” is used to refer to any coin other than Bitcoin. Many altcoins operate similarly to Bitcoin. However, others, such as Dogecoin, are rather different. Doge, for instance, offers an unlimited supply of coins compared to Bitcoin’s cap of 21 million coins.
Tokens
Like coins, tokens are also digital assets that can be bought and sold. However, tokens are a non-native asset, meaning that they use another blockchain’s infrastructure. These include Tether, which is hosted on the Ethereum blockchain, and others, including Chainlink, Uniswap, and Polygon.
10 popular types of cryptocurrency and how they work
1. Bitcoin (BTC)
Bitcoin was the world’s first cryptocurrency, with its origins dating back to a white paper published in 2008, and remains the best-known type of crypto. It functions on its own blockchain, with transactions verified (and new Bitcoins created, up to a fixed cap) by an army of decentralized miners. In January 2022, Bitcoin was the cryptocurrency with the largest market cap, at US$896 billion.
2. Ether (ETH)
Ether is the cryptocurrency that runs on the Ethereum blockchain. Like Bitcoin, Ether operates on its own blockchain—but unlike Bitcoin, Ether is uncapped, meaning that an infinite number of coins can theoretically be created. Ethereum also supports smart contracts, which are programs that run on the Ethereum blockchain and are executed automatically when certain conditions are met.
3. Binance Coin (BNB)
Binance Coin is native to Binance, the world’s largest cryptocurrency exchange as of 2021. Transaction fees for this exchange are reduced for users who choose to pay in BNB. This has encouraged the adoption of Binance Coin, making it one of the largest cryptocoins in the market. To ensure its value remains stable, Binance destroys or “burns” a fixed percentage of the coins in circulation.
4. Tether (USDT)
Tether is a type of stablecoin, designed to have a less-volatile price by being linked to an external asset. In this case, each coin is backed by an equivalent number of US dollars, which keeps it from experiencing the same kind of pricing volatility that other cryptocurrencies face. There is however, some debate about whether it truly is fully backed by the dollar.
5. Solana (SOL)
SOL is the native coin of the Solana platform, which functions on a blockchain system, just like Ethereum and Bitcoin. Solana’s network can perform a whopping 50,000 transactions per second, making this platform especially attractive to investors looking to trade quickly.
6. XRP (XRP)
XRP, which runs on the Ripple network, has been described as a “cryptocurrency for banks” because it's tailor-made to serve the needs of the financial services industry. Conceived as a way to facilitate international payments, XRP acts as a bridge between two different currencies to offer cheaper, quicker global transfers.
7. Cardano (ADA)
ADA is the native coin of the Cardano blockchain. Dubbed a “third-generation” cryptocurrency, Cardano splits its blockchain into two layers to increase transaction speeds and implements native tokens to ensure a better experience for ADA holders.
8. USD Coin (USDC)
Much like Tether, USD Coin is a stablecoin connected to the US dollar that cannot be mined. However, unlike Tether, USD Coin has more transparent funding and better auditing processes. The aim is to remove some of the risk associated with crypto, as users should always be able to withdraw their coins and receive the corresponding amount of cash in exchange.
9. Dogecoin (DOGE)
Originally created to poke fun at Bitcoin, Dogecoin has now become one of the most valuable cryptocurrencies in circulation. Founded in 2013 and inspired by a dog meme from the same year, Dogecoin first made a name for itself in 2021, and now has a market worth of 8.4 billion euro, as of October, 2022. Dogecoin is a Litecoin fork, and like Bitcoin, is based on blockchain technology. However, unlike Bitcoin, it has no set limit of available coins. On the one hand, this enables people all over the world to mine unlimited Dogecoins. However, there is a higher risk that the infinite amount of this currency could cause its value to decline rapidly.
10. Avalanche (AVAX)
AVAX is the native coin of the Avalanche platform, which bills itself as the “fastest smart contracts platform.” AVAX is, among other things, used to pay transaction fees on the Avalanche platform. The Avalanche platform allows developers to create new custom blockchains on Avalanche as “subnets.” Avalanche’s blockchain is compatible with Solidity, the Ethereum blockchain’s programming language, which makes it easier for Ethereum developers to build subnets on Avalanche.
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There are many different types of cryptocurrencies out there, so it’s certainly worth putting some thought into understanding which coins or tokens might be right for you. No matter if you’re a seasoned crypto investor or looking to take your first steps in this exciting world, learning is a great way to reduce risk and make an informed decision about your money.Ready to take the next step? Read about what you need to set up a crypto walletto store your currency, and visit our blog to learn more about all things crypto.
There are two categories of cryptocurrencies: coins and tokens.
Mining is an integral part of many cryptocurrencies, but not all of them. Many well-known cryptocurrencies, including Bitcoin, operate on a "proof of work" (PoW) validation model that relies on mining. However, other cryptocurrencies like Ripple and EOS follow a "proof of stake" (PoS) model. Ethereum also moved to a PoS mechanism in 2022. This model involves a network of "validators" who stake their own cryptocurrencies in exchange for the opportunity to validate new transactions, update the blockchain, and earn a reward. Therefore, these coins can't be mined through the traditional proof-of-work process.
Altcoins is the term for all cryptocurrencies that aren't Bitcoin. They're called altcoins because they are considered "alternatives" to Bitcoin, and many altcoins aim to improve or iterate on certain aspects of Bitcoin. There are now thousands of altcoins available with different uses (and potential uses). Some popular altcoins include Ethereum (ETH) and Cardano (ADA), both of which can be purchased with N26 Crypto.
The main difference between a token and a cryptocurrency is that tokens don't have their own blockchain. They're non-native assets and need to use the infrastructure of another blockchain.
Non-Fungible Tokens (NFTs) are unique digital assets such as images, videos, GIFs, or music. Similar to cryptocurrencies, NFTs are typically certified using blockchain technology. As the name suggests, NFTs aren't consumable or replaceable. They're unique, non-interchangeable assets that come with proof of ownership.
Yes, you can—in the same way you make money on the stock market. Purchase a cryptocurrency at a certain price, hold onto it, and sell when the price rises. This method relies on you watching the markets to track performance and assessing when the best price is to buy or sell. There is a level of risk involved, but the amount you want to invest is up to you.
Cryptocurrencies are traded through a digital currency exchange (DCE), also known as a cryptocurrency exchange. Online companies are set up to do this, and you can use a variety of payment methods—including credit cards and fund transfers—to buy crypto. It’s then possible for you to buy and sell the currency through these exchanges.
In general, cryptocurrencies are considered legal throughout Europe. However, they aren't regulated, so there's a risk of market instability and potential losses for investors. Cryptocurrencies utilize blockchain technology, which has several security features. Transactions are stored in a special code with a timestamp, making it difficult for cybercriminals to access. Many banks are exploring the possibility of integrating this system into their own operations.
Yes, crypto is subject to capital gains tax. The rules relating to exchange rates and taxation vary by member states, so the exact figure could be as little as 0% and as high as 50%, in terms of tax payable.
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Even if you’re familiar with Bitcoin, you might not know the difference between private and public keys. Discover everything you need to know to get started.
