Overview

Chamath Palihapitiya, the famous Canadian-American venture capitalist, put it best when he said cryptocurrency is ‘money 2.0, a huge, huge, huge deal.’ For the past 13 years, digital currencies have continued receiving their fair share of praise and opposition.

Regardless, it’s hard to deny they’ve been one of the most significant technological developments in this period.

Besides there existing tens of thousands of cryptocurrencies, you can divide the entire market into two: Bitcoin (BTC) and altcoins. Bitcoin is, of course, the most widely used and first officially recognized digital currency that offered a then-unprecedented electronic form of money not governed by any central authority.

All other coins after BTC are commonly referred to as altcoins. These are usually nothing more than utility tokens serving a specific purpose within their respective ecosystems. You can pay someone with these, but this isn’t their primary purpose.

Nonetheless, let’s cover Bitcoin and altcoins in more detail.

Bitcoin

As previously mentioned, Bitcoin is the originator of all digital currencies, first released in January 2009 by the mysterious and pseudonymous Satoshi Nakamoto. It achieved what was set out in its 2008 whitepaper: a peer-to-peer electronic cash system.

In the early days, you could count the number of existing cryptocurrencies with your hands. The earliest ‘Bitcoin copycats’ were Litecoin, Namecoin, Peercoin, and Dogecoin, launched between 2011 and 2013.

Such projects were, of course, quite limited in usage. You could only transfer these coins to friends and businesses as a payment method. After 2013, we slowly saw more innovative and ambitious projects exploring the potential of digital currencies beyond acting as a medium of exchange, and so came the rise of altcoins.

Ethereum was arguably the most pivotal since it pioneered the concept of decentralized applications (dApps) and smart contracts to become a ‘programmable blockchain’ of sorts.

Altcoins

Unsurprisingly, altcoins are all cryptocurrencies other than or alternative to Bitcoin. The blockchains powering such tokens were designed not necessarily to act as a form of money but to accomplish a variety of tasks.

These can include compensating miners on a network, paying for storage, paying for content creation, taking out loans, or any other determined function. Hence, you can segment this class of cryptocurrencies into several groups.

It’s worth noting altcoins can serve multiple purposes simultaneously. Furthermore, there is no universally agreed number of altcoin types, meaning this list is inexhaustive. Yet, we’ll detail the most well-known you’ll come across.

Payment coins

Understandably, these altcoins are precisely like Bitcoin, as we use them to send money around. Yet, they tend to improve upon their predecessor with faster block times and cheaper transaction costs. 

However, these tokens are typically created through proof-of-work or mining and may share other technical characteristics with BTC. Examples of projects in this realm include Litecoin, Bitcoin Cash, Peercoin, and countless others.

The slight alternative to payment coins are tokens used primarily for processing cross-border payments (especially across financial institutions) like XRP and Stellar Lumens at far cheaper and quicker rates than bank wire.

Stablecoins

A stablecoin is an interesting form of payment token maintaining a volatility-free, stable price. Stablecoins are pegged on a 1:1 ratio to another fiat currency (usually the US dollar), digital currency or may be controlled algorithmically.

Tether, USD Coin, DAI, Binance USD, and TrueUSD are a few of the most popular stablecoins.

Application coins

Such coins form part of a blockchain looking to build different applications and smart contracts (Ethereum, Solana, Cardano, Internet Computer, Polygon, etc.) These altcoins are pretty diverse and challenging to segment. Yet, projects of this kind are the most influential.

We can even include projects dealing with interoperability (Cosmos, Polkadot, etc.) and oracles (Chainlink, Augur, etc.) These coins are primarily used to compensate nodes carrying out various execution tasks on their respective platforms.

DeFi coins

The scope of DeFi (decentralized finance) is increasingly broadening. Whether you’re minting NFTs, lending from a platform, or using a decentralized exchange, you would use the coin native to the network in question.

Such platforms include the likes of Ethereum, Maker, Avalanche, Uniswap, Aave, and plenty of others.

Meme coins

A meme token is a coin inspired by a popular internet meme, online community, pop culture allusion, influencer, or a combination of these. Dogecoin is the original meme coin to facilitate payments like BTC while focusing on the theme of being light-hearted and fun.

Generally, most meme coins serve little utility other than hype. Other popular cryptocurrencies include Shiba Inu, Dogelon Mars, Floki Inu, and a host of other peculiarly-named tokens.

Privacy coins

A privacy coin is like Bitcoin with robust additional privacy features like zero-knowledge proof, stealth addresses, and other technologies. The point is to be completely anonymous, which isn’t possible with traditional payment tokens that only provide pseudonymity (which means you aren’t entirely anonymous).

Zcash, Dash, Monero, Pirate Chain, and Verge are a few well-known examples of established privacy coins. 

Exchange utility coins

As the name suggests, you use these altcoins on specific crypto exchanges, usually to receive discounted trading fees, voting power, and other perks not afforded to ordinary users. Examples of exchange utility tokens include CRO (for Crypto.com), FTT (for FTX), KCS (for KuCoin), and BNB (for Binance).

Governance coins

Blockchains have increasingly started creating decentralized autonomous organizations (DAOs), a techno-democratic executive structure controlled by code rather than a central authority. The governance token is a measure of your voting power within these operations.

So, the more of the coin you hold, the more weight you have with any future decisions of a specific protocol like new features, upgrades, treasury allocations, budget expenditures, and so on.

Examples of projects with DAOs and governance tokens include ApeCoin, Uniswap, Axie Infinity, Curve, Maker, Aave, and the list goes on.

Curtain thoughts

It will be interesting whether any new use cases will crop up for the substantial number of existing tokens. Few could have imagined a world where cryptocurrencies can do much more than pay for things. 

Yet, it’s actually due to blockchain technology this is all possible. Therefore, we should look at the former as the internet while digital currencies are simply one part of the internet.

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