7 Common Types of Cryptocurrency Explained

When talking about cryptocurrency, a lot of people struggle to understand that different cryptos represent completely different digital assets. Sure, they all belong to the same system and operate on a similar principle. They can all be bought and sold on the same exchange and stored in the same crypto wallet. However, they’re not the same.

This is something you need to understand before you start investing. 

With that in mind, and in order to help you out a bit, here are the top seven common types of cryptocurrency you might encounter during your research.

1. Transactional

The best-known crypto tokens are the so-called transactional cryptocurrencies. We’re talking about coins like BTC and ETH, the tokens that were meant to be used as digital money. They facilitate peer-to-peer transactions and offer some great incentives for use. Namely, handling transactions in these currencies is immediate and comes with much lower fees.

There are a lot of reasons why people use transactional cryptocurrencies; the most notable examples are international transactions and remittances. You earn money in a different country, and you send money back home using these tokens. The reason why this is so great is that there are so many unbanked and underbanked areas. For a recipient to receive these funds, they just have to make a crypto wallet.

More and more people choose to receive payment in cryptocurrencies, which is another reason for an increase in demand for these tokens. 

One more thing worth mentioning is that these tokens often have a transparent ledger system, which is one of the staples of the De-Fi. 

2. Meme coins

Meme coins are a culmination of a simple concept – sentiment drives market value. No matter how strong the economic factors are, if people believe that the company is not doing so great and they start selling the shares, the stock is going down. 

Meme coins just took this concept a step further, but don’t let the humorous origin of these meme coins trick you. The majority of them are driven by community enthusiasm and social media, which doesn’t mean that they don’t hold any worth. These coins can be quite profitable; in fact, some top meme coins have experienced explosive growth over the past few months. 

People may buy them to become a part of the community trend, but it didn’t take long for people to use these meme coins to tip their favourite content creators and streamers. This gave them quite a bit of utility. 

The most important thing to keep in mind when choosing a meme coin is to pay attention to the community.

3. Stablecoins

The simplest way to explain stablecoin is to say that it’s a coin that has its value tied to a traditional (real-world) asset. The value of a specific stablecoin can be a percentage of a USD or a gram of gold. The bottom line is that this ensures that its volatility is lower and that it’s more appealing to a broader audience of investors.

They’re not just an asset; they’re also an answer to the question of how to convince people that cryptocurrencies are a real, trustworthy investment option.

Surprisingly enough, due to their higher level of stability and their increasing reliability, an increasing number of vendors allow the use of these stablecoins as a form of payment. 

This can be quite an interesting concept, seeing as how cryptocurrencies, by default, allow you a higher level of anonymity. Perhaps you don’t want your online activity tracked. For instance, this is why a lot of people play on anonymous casinos instead of regular online ones. Well, if you also pay and get paid in stablecoins, you get an extra layer of anonymity.

4. Utility tokens

Utility tokens are cryptocurrencies that you can use to get access to a certain platform or a feature on a platform. In other words, they’re gatekeeping a certain service, and you have to buy it in order to unlock it.

Think of it as an in-game currency. No matter how much real-world money you have, you cannot use it to create a battleship in a video game. For that, you need in-game resources and money. Well, on some platforms, you can actually buy this in-game currency with real money. This is similar to how utility tokens work but on a larger scale and more applicable platforms. 

Now, one of the fundamentals of cryptocurrency trading lies in understanding market trends. With utility coins, this is much easier. You see, the more useful the function it is tied to, the more utility a token has. Does this mean that it will be a guaranteed success? No, but nothing is ever guaranteed in trading and investing. It does, however, mean that your odds are significantly greater. 

5. Security tokens

Similarly to stablecoins, security tokens represent ownership of an underlying asset. They’re the cryptocurrency equivalent of financial securities. In other words, this token could represent a share in a certain company, piece of real estate, or any other financial instrument you can think of. 

One of the advantages of these security tokens is the fact that you can make quite simple and quick transactions. Seeing how they’re traded on the same exchanges as traditional (transactional) cryptocurrencies, this process can be a lot faster, making these security tokens slightly more liquid than their conventional counterparts.

Just remember that these tokens are not just subjected to crypto regulation. They also need to comply with securities law and ensure investor protection. They’re also under more regulatory oversight, which might drive away people who are interested in cryptocurrencies for the exact opposite reason. At the same time, for a lot of investors, regulation means greater safety. 

6. AI coins

The simplest way to explain AI coins would be to say that they’re utility coins whose utility is the use of AI platforms and AI projects. Generally speaking, these cryptocurrencies are linked to projects that integrate artificial intelligence with blockchain technology. Seeing as how both of these technologies (blockchain and AI) are on a massive rise in usefulness and popularity, the growth of this token type is almost guaranteed. 

While there are some major corporations developing AI technologies, the reality is that the majority of AI research is done by relatively small teams. This is why the use of these AI coins can be used to funnel some funds back into the system and further the research.

These coins usually focus on enhancing the functionality and capabilities of blockchain systems through AI integration. They benefit from a growing interest in AI and its overall capability.

Needless to say, all of this creates a self-sustaining loop. With more interest in AI, the value of these coins grows. The higher the value, the more money gets pumped into the system, which leads to development that further drives value upward.

Understanding different crypto tokens is the key to understanding the concept

As you can see, different cryptocurrencies operate on different principles, and their values are determined by different factors. This is the key thing to understand before you start buying them. While transactional cryptocurrencies are used by everyone, utility tokens may be more useful for people using functions and platforms they affect. As for the meme coins, stablecoins, and AI coins, these are, more or less, situational. They can all, however, be quite profitable if you can find the right tokens.