There are many different types of cryptocurrency, each with its own unique features and characteristics but broadly we can consider them into four types:
Altcoins
Alternative cryptocurrencies to Bitcoin are known as altcoins. Since the invention of Bitcoin, there have been hundreds of altcoins established, and the term “altcoin” refers to any cryptocurrency other than Bitcoin. There are numerous alternative coins that have been established with distinct features and qualities, but many altcoins have been created that are similar to Bitcoin and are built on the same open-source code. Like Bitcoin, altcoins can be used as a medium of exchange, but they may also provide different features or advantages. Ethereum, Litecoin, and Monero are a few well-known alternative currency.
Tokens
Digital assets built on top of a blockchain are cryptocurrency tokens. They can be purchased and traded on cryptocurrency exchanges and are frequently used to represent a wide range of items, including money or collectibles. The utility token, which grants the holder the ability to utilise a certain good or service, is one of the most popular forms of cryptocurrency tokens. For instance, a business might release a token that entitles the owner to access a brand-new virtual reality platform that is under development.
The security token, which represents ownership in an asset like a business or piece of real estate, is another sort of token. Federal securities laws apply to these tokens, and as such, they must be registered with the appropriate regulatory bodies.
Anyone with access to a smart contract on a blockchain like Ethereum’s can create tokens. An initial coin offering (ICO) is the creation and sale of these tokens, which are frequently used to raise money for initiatives (ICO). Although ICOs can be used by businesses to raise money, they have also been the target of fraud and other types of misuse. In an effort to combat this, regulatory agencies around the world have begun toughening up on ICOs to protect the investors.
Stablecoins
Stablecoins are cryptocurrencies that are pegged to the value of a stable asset, such as the US dollar or gold. A stablecoin provides the benefits of a cryptocurrency, such as fast and cheap transactions, without the volatility often associated with them.
Stablecoins come in a variety of forms, including:
Fiat-collateralized stablecoins
These stablecoins are supported by a reserve of real-world assets, such as dollars or euros. For eg. Tether (USDT) which is backed by US Dollar reserves.
Cryptocurrency-collateralized stablecoins
Stablecoins are a type of cryptocurrency that is designed to maintain a stable value relative to a specific asset or basket of assets. One way that stablecoins achieve this stability is by being backed by a reserve of another cryptocurrency, such as Bitcoin. For eg. Maker DAO’S Dai (DAI) backed by Ethereum.
Non-collateralized stablecoins
This is another category in which backing is not by an asset but its value is controlled by complex algorithms. Means it keeps value stable by controlling its supply through an algorithm.