Types of cryptocurrencies: differences and features Skip to content

What types of cryptocurrencies exist and what are their differences

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With the development of blockchain technologies, cryptocurrencies themselves are developing. Emerging today are tokens, stablecoins and a separate DeFi industry with governance and synthetic tokens. 

In this article, we will explain how tokens differ from cryptocurrencies, what altcoins and stablecoins are. We will give you examples of the types of cryptocurrencies and tell you what they can be used for.

Classic cryptocurrencies: features and methods of use 

Classic cryptocurrencies include those coins that have their own blockchain. Blockchain is the technology using which cryptocurrencies work and record account balances and transfers in a chain of information blocks. 

The first and most famous cryptocurrency — Bitcoin — appeared in 2009. The rest began to be called altcoins, that is, alternative coins. Only those that work on their own blockchain are classified as classical.

10 examples of blockchain cryptocurrencies
Examples of classic cryptocurrencies

Initially, Bitcoin was created as a means of payment alternative to national currencies. 11 years have passed since its inception, and in 2020, cryptocurrencies have the following applications:

  • Means of payment. Bitcoin and other cryptocurrencies can be used to pay for purchases in services that support this payment method. You can also pay for the work of those contractors who accept cryptocurrency.
  • A tool for international transfers. With the help of cryptocurrency, you can quickly transfer any amount of money to another user anywhere in the world. Commissions will come to several dollars, and the transfer will take from several seconds to several minutes. 
  • A tool for trading on exchanges. Unlike national currencies, the value of cryptocurrencies is not guaranteed by anything. Therefore, the price can vary greatly. Users who trade cryptocurrency on exchanges make money both on the growth and fall of the price.
  • A DeFi investment tool. With the help of cryptocurrency, you can make deposits using special apps, take out loans or create derivatives.
4 ways to use cryptocurrencies
4 ways to use cryptocurrencies

Bitcoin has its drawbacks. For example, you cannot transfer bitcoin to another wallet in less than 10 minutes, and its blockchain cannot be used to create apps and smart contracts. Therefore, developers of other cryptocurrencies have included such an opportunity in their blockchains:

Ethereum: a cryptocurrency on whose blockchain you can create apps, games, tokens and smart contracts. Maximum transaction speed is 30 seconds.

Dash: a cryptocurrency whose creators originally set out to make a coin for everyday shopping. Therefore, they developed a two-tier blockchain system that confirms transactions in 5 seconds.

You can buy these cryptocurrencies for rubles, dollars or other currencies in our P2P exchanger.

Tokens: how they differ from cryptocurrencies and where they’re used

These are cryptocurrencies that do not have their own blockchain. They are created on the basis of blockchains of other cryptocurrencies. For example, OKB tokens of the OKEX cryptocurrency exchange and CRO of the Crypto.com cryptocurrency exchange work on the basis of Ethereum.

Examples of tokens from two different blockchains
Examples of tokens of two different blockchains

Tokens can perform different functions:

  • Usage within apps and platforms. Tokens are used for mutual settlements within cryptocurrency platforms and blockchain apps. For example, with the help of a token, you can activate additional functions in apps or pay commissions on exchanges.
  • Collectible items. There is a separate type of tokens, each of which is unique and gives the user the right to own a digital item: non-fungible tokens (NFT). For example, you can buy an item from a blockchain game or a digital painting. You buy a token and the blockchain writes it to your account so you can be sure that only you have this item and no one else can use it. At the same time, you still have the opportunity to sell this token.
  • A tool for trading on exchanges. Like classic cryptocurrencies, tokens are traded on exchanges. Traders make money on the rise or fall of their price.
4 features of tokens
Features of tokens

For the convenience of integrating tokens on different platforms, standards were developed according to which tokens are created. For example, ERC20 and ERC721 are popular when it comes to the Ethereum blockchain. Many cryptocurrency exchanges support the ERC20 standard. Therefore, they can quickly add new tokens of this standard to the platform.

Tokens have 2 subcategories that play a significant role in the modern crypto industry. Below we have written about each of them in more detail.

Stablecoins: how they are created and where they’re used

The value of such tokens is pegged to the value of another asset, for example, the US dollar or the Russian ruble. A stable price is achieved in two ways:

  1. Secured by national currency. These stablecoins are issued by companies who secure them with money in their bank accounts. For example, USDT stablecoins that are pegged to the value of the US dollar are issued by Tether, TGBP stablecoins pegged to the British pound are issued by TrustToken.
  2. Secured by cryptocurrency. These stablecoins are issued by special apps. The amount of cryptocurrency in such apps is always higher than the number of coins issued. If the price of the cryptocurrency starts to fall, the app has time to sell it. If the price of the cryptocurrency rises, the app destroys part of the stablecoins in its reserve. The Russian ruble MCR and USD DAI stablecoins are issued in this way. 
10 examples of stablecoins
Examples of stablecoins

Traders and users distinguish 3 areas of application of stablecoins:

  • Arbitration between cryptocurrency platforms. When trading on several exchanges at once, it is often necessary to transfer funds from one exchange to another. Initiating a transaction of stablecoins of the US dollar USDT is faster than a bank transfer of US dollars.
  • Deposits in stablecoins. DeFi apps need liquidity to function. Liquidity is user funds locked in the app. Therefore, apps reward those users who provide it.
  • Loans in stablecoins. You can issue stablecoins by collateralizing them with cryptocurrency. With the help of such loans, you can protect yourself from falling cryptocurrency rates. And you still have the opportunity to earn from increases in its price.
2 features of stablecoins
Features of stablecoins

We have written a separate article about how to use stablecoins. Learn how to earn and preserve your assets with stablecoins. 

How tokens are used in DeFi

Such tokens are used in DeFi apps. These apps copy the functionality of banking instruments using blockchain technologies. In DeFi, one app has 2 types of tokens:

  1. Governance tokens. They give the user the right to vote for changes to the app. The more votes a user has, the more opportunities they have to influence the app. These tokens are traded on exchanges, their value changes. Also, in some DeFi projects, a deposit in governance tokens is available. Governance tokens can be bought or received for using the app. For example, if you often take out loans or make deposits, then these tokens will be credited to your wallet. Typically, apps regularly distribute tokens among all users in proportion to the amount of money they use in the app. Examples of governance tokens are COMP for Compound, LEND for Aave, and YFI for Yearn Finance. 
  2. Synthetic tokens. Their value is pegged to the value of another asset in a certain ratio. Unlike with stablecoins, this ratio is not 1:1 and is subject to change. For example, in the Synthetix app, you can create synthetic tokens, the value of which will rise in proportion to the rise or fall in the value of another asset. If the asset price falls by 10%, then the value of the synthetic token, on the contrary, will increase by 10%. 
10 examples of DeFi tokens
Examples of DeFi tokens

Synthetic tokens are also used to calculate interest on deposits. For example, you deposit USDT stablecoins using the Aave app. When you transfer USDT to a smart contract, it automatically credits you with aUSDT tokens. Their value increases with the percentage of profitability. If you earned 5% on the deposit, then the cost of aUSDT will be 105% of the value of USDT. All applications in which you can make deposits have such tokens. For example, Compound’s cTokens, Aave’s aTokens, Yearn Finance’s yTokens.

We have written a separate article about DeFi. From it you will learn what it is and how to make money in this area.

Summary

After 11 years of the existence of cryptocurrencies, they have appeared in several varieties. Classic cryptocurrencies work on the basis of their own blockchain. They can be used as a means of payment and international transfers, as a tool for trading on exchanges and making money on DeFi. Examples of classic cryptocurrencies: Bitcoin, Dash, Ethereum.

Tokens are coins that are created using blockchain technology, but which don’t have their own blockchain. They provide an opportunity to interact with cryptocurrency projects. Tokens are used inside apps and cryptocurrency platforms, and they are also traded on exchanges.

Stablecoins are tokens whose value is pegged to the value of a real asset at a 1:1 rate. Such a rate is achieved either by providing the national currency on the accounts of the issuing company, or by using a special algorithm and cryptocurrency. The former are USDT and USDC, the latter are MCR and DAI.

DeFi tokens are used in the field of decentralized finance. These are apps that run on the blockchain and emulate the tools of the banking system. DeFi apps use 2 types of tokens: governance and synthetic. The former give the right to vote for changes to the app, the latter are pegged to the value of the asset in a certain ratio. For example, the rate of synthetic tokens can take into account the percentage of return on deposits.

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