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.
5 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.
Coins and altcoins
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.
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 TerraUSD, Chainlink, Uniswap, and Polygon.
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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. Terra (LUNA)
LUNA is the native coin of the Terra blockchain, and backs the various stablecoins created on this network. Terra's algorithmic stablecoins are backed by LUNA, and use a central pool of tokens controlled by smart contracts to maintain the price.
For example, if the price of TerraUSD (a stablecoin on the Terra network tied to the USD) goes above $1, the algorithm uses LUNA to produce more UST and bring the price back down. If the price falls, the algorithm swaps UST for LUNA to push it back up. Token holders can stake LUNA so they're rewarded for absorbing the volatility. LUNA can also be used to pay network fees and allows owners to participate in matters relating to the governance of this network.
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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What to consider before buying cryptocurrency
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 wallet to store your currency, and visit our blog to learn more about all things crypto.
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