Types of Cryptocurrency
Cryptocurrencies come in many forms.
If you’re new to crypto you might be wondering, how do people make sense of all these different coins and tokens?
While there are no official rules or standards when it comes to crypto classification, some frameworks can be more helpful than others.
Crypto traders can use these different systems to decide what assets to purchase and how to best diversify their portfolios.
The categories below are adapted from Messari's classification system, a leading crypto data and information aggregator.
Payment cryptocurrencies can be thought of as digital forms of cash which are operated by a distributed network of computers running a shared blockchain software. Some focus on trying to compete with cash, while others focus on payments for a specific use case or industry.
Cryptocurrency networks aiming to disrupt the traditional payments industry do not typically have many of the more specialized features seen in other cryptocurrency projects. Instead, these assets are solely focused on providing an infastructure to define, transfer, record and secure transactions on the network.
Some might consider Bitcoin (BTC), the original cryptocurrency, as a good example of a payment cryptocurrency. After all, its creator Satoshi Nakamoto designed as an alternative to traditional financial system and described it as a "peer-to-peer electronic cash system" in the Bitcoin white paper.
The majority of other payment cryptocurrencies available seek to improve upon Bitcoin in various ways, from scalability to speed.
Stablecoins can also be classified as payment cryptocurrencies.
These crypto assets are generally pegged to more traditional assets and offer the efficiency and transparency benefits of cryptocurrency while providing price exposure to more established forms of value.
Infrastructure cryptocurrencies refer to any crypto projects that are primarily focused on improving the underlying technology that other cryptocurrencies use to operate. Infastructure tokens are most often associated with blockchain networks that provide developers with smart contract functionality.
Examples of infrastructure projects include those focused on providing a base layer for application development as well as those projects looking to improve blockchain efficiency via secondary scaling solutions.
The crypto asset that powers the Ethereum blockchain, called Ether (ETH), may be considered an infrastructure cryptocurrency, as it plays a fundamental role in the creation and use of decentralized applications (dApps) built on top of Ethereum.
Arbitrum also falls within the category of an infrastructure cryptocurrency. It's Layer 2 scaling solution serves to improve the transaction processing capabilities of the Ethereum blockchain. It's native token, Arbitrum (ARB), provides holders with important voting rights over how the project is managed.
Tokens focused on blockchain interoperability can also be categorized as infrastructure cryptocurrencies.
The goal of these specific projects is to provide a way to link multiple blockchains together, In doing so, blockchain users are able to transact and share data across disparate networks that otherwise may not be compatible.
Financial cryptocurrencies are categorized as those assets which help users manage or exchange other crypto assets.
For example, any cryptocurrency natively linked to a centralized or decentralized exchange may be considered as a financial cryptocurrency. These may provide holders with lower trading fees when using the platform. They may also serve as governance tokens which grant voting powers to holders and grant them a say over how the platform should operate. One of the most popular examples of this type of asset is Uniswap (UNI).
Other financial cryptocurrencies might be used to crowdfund money, and help connect early-stage crypto projects with investors.
More complex financial cryptocurrencies may even seek to replicate financial services like market making or lending and borrowing. Further, prediction markets cryptocurrencies provide a way to speculate on the outcome of specific events.
Service cryptocurrencies typically offer tools for managing and sharing data blockchain technology.
Their commonality often lies in leveraging the transparency and security benefits of distributed ledgers to streamline and improve traditional sectors, such as healthcare and energy.
For example, some service cryptocurrencies work to provide users with digital identities and link individual’s records from the real world to the blockchain. Others service cryptocurrencies allow individuals to track and trade energy that they produce using peer-to-peer networks.
Service cryptocurrencies also attempt to disrupt the data storage industry, by offering decentralized, cheaper alternatives to traditional cloud storage options like Amazon's Web Service (AWS).
Media & Entertainment Cryptocurrencies
Much like the name suggests, media and entertainment cryptocurrencies seek to reward users for creating and interacting with content, games, gambling or social media.
A media and entertainment cryptocurrencies like Basic Attention Token (BAT) aims to better distribute value in an equitable way to creators and consumers.
Media and entertainment cryptocurrencies also power digital worlds accessed via virtual and augmented reality technologies.
Both Decentraland's MANA token and The Sandbox's SAND token act as a primary utility token in the game's vast virtual world. Holders need this token to purchase land, interact with user-generated content, and participate in the platform's governance process.
The vast world of non fungible tokens (NFTs) also fall within this category. These unique assets allow holders to prove their exclusive ownership over intangible items, including in-game characters and digital works of art.
Start buying cryptocurrencies
Now that you've learned a bit more about all the different types of cryptocurrency that are available today, are you ready to take the next step and buy some cryptocurrencies?
Create your Kraken account today to get started in the exciting world of cryptocurrency.