The first step before you start investing in cryptocurrencies is to understand what types of cryptocurrencies there are. Once you understand the different kinds of crypto coins, you can begin to think about how to invest in crypto coins. This will later become your investment strategy.

Cryptocurrency might not be new anymore but it is still capturing the minds of many. The main reason is the ease and speed of the money transfer that took several days to accomplish. Because of its ease of use it has gained significant importance and advancement. Now you do not only use it as a means of transfer but also as your asset or investment.

But, back in 2019, it was very easy to dive into this world because there was only one currency that worked with the help of blockchain technology, and that was Bitcoin. Now, it is impossible to count these decentralized currencies on fingers. Therefore one must have complete knowledge of main types of cryptocurrencies and tokens before making any investment.

Main types of cryptocurrencies and tokens

Cryptocurrency is a digital world where money is not controlled by banks. It is the world where money exists online where anyone can use it easily. Worked by the help of blockchain technology, it works on a decentralized system which has opened new gates for transactions with transparency and autonomy. As it is getting advanced day by day, its realm has expanded immensely but still there are three main types of cryptocurrencies and tokens- BItcoins, Altcoins, and Tokens. Each plays a distinct role  in shaping the systems of digital assets and decentralized applications. Below, I have concluded the details of each in order to help you to understand more about this ever evolving world.

• Bitcoin: the development of cryptocurrency started with bitcoins which serves as both a decentralized digital currency and a store of value. It does not require any centralized system or bank as it completely revolutionized  and redefined the traditional system of transactions. Bitcoin facilitates peer-to-peer transactions without the need of intermediaries and any centralized system.

• Altcoins: development of Bitcoins marked the era of a new beginning for digital assets. And many new coins emerged against Bitcoin which are collectively called Altcoins. With each new altcoin, diversity brought forward in the crypto space. Each altcoin has its own distinctive set of features and use cases. For example, Etherum(ETH) is known for introducing smart contracts and Litecoin(LTC) for its swifter transaction processing.

• Tokens: the third main type of cryptocurrencies are Tokens that are different then Bitcoins and altcoins. They are more like special digital items or rights that you own and they reside digitally on blockchains.for example, you can get tokens of a new project which can represent the project’s ownership or something within the project.

Exploring the various categories of tokens

The below categories have been adapted from the classification systems used by CoinGecko, CoinMarketCap, and Messari.

Stablecoins 

Stablecoins are cryptocurrencies that are designed to maintain a stable value by pegging their value to another currency, commodity, or financial instrument. The aim of stablecoins is to provide an alternative to the high volatility often experienced by popular cryptocurrencies like Bitcoin.

Stablecoins are a notable category within the vast realm of cryptocurrencies. These digital assets seek to mitigate the renowned volatility that is frequently associated with cryptocurrencies by tying their value to a stable reserve of assets, often traditional fiat currencies like the US dollar or commodities like gold.

Payment Cryptocurrencies

Payment cryptocurrencies are often viewed as digital forms of payment that are run by a distributed network of computers that use the same blockchain software. Some attempt to compete with cash, while others concentrate on payments for a specific use case or sector.

Some may regard Bitcoin (BTC), the initial cryptocurrency, to be an excellent example of a payment cryptocurrency. The bulk of alternative payment cryptocurrencies aim to outperform Bitcoin in various aspects, ranging from scalability to speed. 

Liquid Staking Tokens

Liquid staking tokens refer to a method of staking where holders can get liquidity in the form of a derivative token while their staked assets continue to earn rewards. This concept allows users to stake their tokens in Proof of Stake (PoS) blockchain networks and at the same time participate in other decentralized finance (DeFi) activities, thanks to the creation of these derivative tokens.

Liquid staking has gained significant traction in the decentralized finance sector, with a combined total value locked (TVL) of $21.6 billion. 

Infrastructure Cryptocurrencies

Infrastructure cryptocurrencies refer to digital assets that facilitate the functioning of blockchain networks and their associated applications. These are cryptocurrencies that are used as building blocks that support the broader cryptocurrency ecosystem. 

The role of infrastructure cryptocurrencies in the cryptocurrency ecosystem is crucial in facilitating a range of blockchain-based activities like the development of decentralized applications, creating and managing smart contracts, and providing governance and security for blockchain networks. With the growth and continued development of the cryptocurrency industry, infrastructure cryptocurrencies are expected to remain an integral part of the ecosystem.

Security tokens

Security tokens, a sort of digital asset, correspond to an investment in a business and sometimes include privileges such as voting or profit sharing.

They are similar to traditional securities, except they use blockchain technology to expedite the purchasing, selling, and monitoring of ownership. Security tokens, on the other hand, are subject to securities rules and regulations, unlike other tokens. This means they must adhere to the legal criteria established by financial regulatory organizations, giving investors an additional degree of safety.

Security tokens, paradoxically, can be partitioned into divisions, empowering more modest, retail financial backers to take an interest.

Governance Tokens

Governance tokens are a type of cryptocurrency that grants holders the authority to participate in the decision-making processes of a decentralized platform or protocol. 

Holders of governance tokens can typically use their tokens to cast votes on various governance matters, such as protocol upgrades, parameter adjustments, funding allocations, and other significant decisions related to the platform.

Governance tokens have gained prominence within decentralized finance (DeFi) ecosystems, where they play a crucial role in determining the direction and governance of lending platforms, decentralized exchanges, and other financial protocols. Examples of governance tokens include Compound (COMP), MakerDAO (MKR), and Uniswap (UNI).

It is important to note that governance tokens come with their own set of risks and considerations. Holding governance tokens involves being actively engaged in the governance processes of a protocol, keeping up with proposals, and making informed decisions. Additionally, the value of governance tokens can be influenced by the success and adoption of the underlying platform, as well as market conditions.

DeFi Tokens

Decentralized Finance (DeFi) tokens are cryptographic assets that are primarily used within decentralized financial ecosystems built on distributed networks, without the need for intermediaries. These tokens are designed to power various functionalities, such as lending, borrowing, yield farming, decentralized exchanges, and other financial services in the DeFi space, by providing liquidity, governance rights, and utility within decentralized ecosystems.

The top DeFi tokens may vary based on factors such as market capitalization, trading volume, and user adoption. 

It is important to note that the DeFi market is constantly evolving, and token rankings may change over time. It’s advisable to refer to the latest data from reputable sources to get the most up-to-date information on top DeFi tokens.

Non Fungible Tokens

Non-Fungible Tokens (NFTs) are unique digital assets that are built on blockchain technology. Unlike cryptocurrencies such as Bitcoin or Ethereum, which are fungible and can be exchanged on a one-to-one basis, NFTs have distinct properties and cannot be exchanged on a like-for-like basis.

The uniqueness of NFTs is achieved through the use of blockchain technology, which provides a transparent and tamper-resistant record of ownership and provenance. Each NFT is assigned a unique identifier, which distinguishes it from other tokens. These identifiers, stored on the blockchain, ensure the authenticity, ownership, and scarcity of the NFT.

NFTs have become particularly popular in the art world, enabling artists to sell and authenticate their digital creations in a transparent and verifiable manner.

However, it is worth noting that the NFT market is relatively new and still developing, and there are considerations to be aware of. NFT ownership does not necessarily grant copyright or intellectual property rights, and the value of NFTs can be subject to market volatility. 

Service or business platform cryptocurrencies 

Service or business platform cryptocurrencies refer to digital assets that are native to particular platforms or ecosystems, providing specific utility or functionality within those environments. These cryptocurrencies are often used to access and utilize services or products offered by the platform

For example, Binance Coin (BNB) is the native cryptocurrency of the Binance platform. BNB can be used for various purposes within the Binance ecosystem, such as paying for trading fees, participating in token sales, and accessing other features and services offered by Binance.

Financial Cryptocurrencies

Financial Cryptocurrencies are arranged as those resources which help clients oversee or trade other crypto resources.

For instance, any digital currency locally connected to a unified or decentralized trade might be considered as monetary cryptographic money. They may likewise act as administration tokens which award casting a ballot powers to holders and award them a say over how the stage ought to work. One of the most well-known instances of this kind of resource is Uniswap (UNI).

Summary

In the above article we have mentioned three main types of cryptocurrencies in detail so that you can have a better understanding of their use cases and the reason behind their invention. The summary of our discussion is stated below:

Bitcoin: Bitcoin is a digital decentralized currency operating on a blockchain. It allows peer-to-peer transactions without any central authority.

Altcoin:Altcoins are alternatives to bitcoins with unique features and are often built on different blockchain technology.

Tokens: These are assets or utilities on existing blockchains.