Types of cryptocurrencies

Cryptocurrencies are digital currencies, based on cryptography: currencies that do not exist in physical form and are neither issued nor controlled by a central authority, such as a state or government, but despite some similar characteristics, they are not all the same. Since the first cryptocurrency, Bitcoin, based on blockchain technology, was created in 2009, cryptocurrencies have evolved and today there are different types, divided mainly into two categories: coins and tokens.

Coins and tokens, how many types of cryptocurrency are out there?

Digital currencies are defined as those cryptocurrencies that use their own independent blockchain, i.e. they rely on their own infrastructure. The blockchain is in fact a virtual, decentralised register, shared among all users, where all exchanges made are recorded.

All transactions are validated only after being verified by a shared cryptographic system and once inscribed on the blockchain they are immutable, this collective and public process guarantees their security. Bitcoins, for example, fall into this category because they have their own blockchain, as does the cryptocurrency Ether, which runs on its Ethereum blockchain.

Tokens, on the other hand, are non-native, i.e. they do not have their own blockchain: they are sold and bought just like digital coins but on a blockchain where exchanges of other cryptocurrencies also take place. While digital coins are part of the blockchain from which they can also be mined (through 'mining', in the case of Bitcoins), tokens are generated on others' blockchains through special software called 'smart contracts'. For example, Tether and BAT are both tokens hosted on the Ethereum blockchain.

Another category of cryptocurrencies is stablecoins, which are designed to have a value that is more stable and less prone to change, which is why even though they are built on a blockchain they are pegged to a physical currency, such as the dollar or the euro, or to assets such as gold, which should ensure greater stability. An example of a stablecoin is Tether (USDT), pegged to the value of the US dollar.

Instead, all cryptocurrencies other than their parent, Bitcoin, are generically called altcoin (where 'alt' stands for 'alternative' and 'coin' for currency).

Ten types of cryptocurrencies

1. Bitcoin

Bitcoin, born in 2008, was the first cryptocurrency and is still the best-known cryptocurrency in the world, as well as the most capitalised on the market. At the basis of its operation is the blockchain, where each exchange of virtual currency is only recorded after being verified by a shared cryptographic system. This process is called 'mining' and is carried out by 'miners', computer experts and cryptographers, who work on the blockchain from all corners of the world, ensuring its security.

Mining is also how new bitcoins are created, although their quantity is not infinite. Bitcoin's inventor, the mysterious Satoshi Nakamoto whose identity has never been discovered (it could also be that of a group of people), set the maximum amount of bitcoins at 21 million and today it is estimated that they have already reached 18 million.

2. Ether (ETH)

Ether is the second most capitalised cryptocurrency in the world, was born in 2015 and relies on its own blockchain, Ethereum, which thanks to smart contracts can also host other cryptocurrencies. Ether also, unlike Bitcoin, has no maximum mining limit, which means that theoretically an infinite number of units of this digital currency can be created.

3. Litecoin (LTC)

Litecoin is a peer-to-peer cryptocurrency created in 2011 that took inspiration from Bitcoin, in fact, it is based on the same source code and an open-source cryptographic protocol. Compared to Bitcoin, it is faster in transactions.

4. Bitcoin Cash (BCH)

Bitcoin Cash is a cryptocurrency created in 2017 following a hard fork with Bitcoin, of which it is therefore a derivative. It differs in its ability to process transactions much faster, thanks to a different protocol that allows it to process calculations more efficiently.

5. Polygon (MATIC)

MATIC is the cryptocurrency token of the Polygon project, an Ethereum-based blockchain released in 2017. It was created with the aim of making exchanges and all services that rely on blockchain faster and more efficient, and to create a system where all blockchains can interact and are interconnected.

6. Solana (SOL)

SOL is Solana's native cryptocurrency, a decentralised blockchain created as an alternative to Ethereum, which offers the possibility of developing smart contracts and focuses on very fast and cheap transactions.

7. Polkadot (DOT)

Polkadot (DOT) is the native cryptocurrency of the blockchain of the same name, launched in 2020, which is particularly innovative because it brings together several blockchains into one network, which is called the 'Relay Chain'.

8. Avalanche (AVAX)

AVAX is the native cryptocurrency of Avalanche, a platform launched in 2020 that is an open-source blockchain protocol, i.e. it allows developers to create their own customised blockchains within it. It competes with Ethereum, thus offering the possibility to create smart contracts and tokens.

9. Algorand (ALGO)

ALGO is the native cryptocurrency of the independent blockchain Algorand, launched in 2017. It is a centralised platform whose distinguishing features are high transaction speed and low fees.

10. Near

NEAR is the token of NEAR Protocol, a decentralised platform for smart contracts, which therefore focuses on the development of decentralised applications (dApps) on its network, thus also offering interoperability with other blockchains, such as Ethereum.

What to consider before choosing the right cryptocurrency for us

As we have seen, cryptocurrencies are not all the same and every day new projects see the light of day, so it is particularly important to be well-informed to understand which one is right for us.

Are you ready to get into cryptocurrencies? Enter the app, scroll down the list of cryptocurrencies and, for each one, you will find the chart with the real-time trend and other interesting facts about the project and its founders.

Cryptocurrencies are unregulated assets with no investor protection. Oval doesn't provide financial advice.