While Bitcoin and Ethereum are the two most well-known and valuable cryptocurrencies, there are thousands of different coins and tokens. CoinMarketCap is tracking around 20,000 cryptos as of June 2022, and it only takes a few minutes for someone to create and launch a new crypto token. But that doesn’t mean every crypto is worth buying or that they all serve a real purpose.
The different types of cryptocurrencies
All cryptos are built using blockchain technology, a way to harness the power of a decentralized network of computers to process transactions and run programs. But people and companies create new cryptos with different goals in mind.
Satoshi Nakamoto launched Bitcoin as a digital form of currency in 2009. Ethereum, by contrast, was launched in 2013 and is more like a world supercomputer that runs programs, called smart contracts. The related Ether crypto is how people pay for transactions on Ethereum.
Those are the two most well-known coins, but there are many others. To help make sense of the different types of cryptos, they're often put into categories based on how they’re created and their intended purpose.
Coins vs. tokens
One major distinction is between crypto coins and crypto tokens. A crypto coin has its own blockchain network and it's sometimes called that blockchain’s native currency—for example, Ethereum’s native coin is Ether. People can earn the coin from crypto mining or staking, and use it to pay for transactions on the associated network.
Bitcoin and Ethereum are both coins with their own blockchains, but they aren’t the only crypto coins. For example, Cardano is a competing coin with its own blockchain and it was created with scalability and sustainability in mind—two issues that Bitcoin and Ethereum struggle with. The native Cardano coin is Ada, named after Ada Lovelace, Lord Byron’s daughter and one of the first computer programmers.
Crypto tokens are built on top of an existing blockchain. The tokens can have their own value, and many tokens offer some type of additional utility. Many tokens are built on the Ethereum network using ERC-20 token standard—and having a standard makes it easy to trade one token for another.
For example, Uniswap is a decentralized exchange that’s part of the Ethereum blockchain—it uses Ethereum processing power and rules. Uniswap has an ERC-20 token called UNI, and token holders can vote on how they want the platform to develop. When someone wants to trade crypto on Uniswap, they need to pay a network fee to crypto holders that help facilitate trades on Uniswap plus a transaction fee (called a gas fee) in Ether.
Types of coins and tokens
Beyond the broad distinction between coins and tokens, there are also more specific names for different types of cryptos. In a somewhat confusing twist, some of the commonly used names have “coin” in them, even when the type of crypto would more generally fall under the token classification. In the fast-changing crypto space, sometimes a name sticks before naming convention becomes the new norm.
- Altcoins. Bitcoin was the first cryptocurrency, and it’s still the dominant player in terms of market cap. Every other coin is an altcoin.
- Equity tokens. These tokens give someone ownership of a crypto project or an asset, similar to how buying stock allows someone to buy partial ownership of a company. For example, each ArCoin token represents a share of the Arca Lab’s Arca U.S. Treasury Fund.
- Governance tokens. Governance tokens give token holders voting rights. For example, there could be a vote to change an exchange’s trading fee, and the result depends on the token holders’ votes. UNI is a governance token.
- Meme coins. Meme coins are designed to play off a popular meme and they may be joke coins that don’t have any additional use. Although some, like Dogecoin and Shiba Inu, have become popular and valuable.
- Non-fungible tokens. Unlike other tokens, non-fungible tokens (NFTs) are unique. While every token of the same type (e.g., every UNI) is worth the same amount—just like every dollar is worth the same amount—an NFT’s unique traits means it may be worth a different amount than similar NFTs. In this way, NFTs are more like art than currency.
- Privacy coins. A few coins, such as Monero, are created to obscure users’ identities and holdings. With other cryptos, transactions are recorded on a public blockchain, they can be tied to crypto wallets, and the wallet’s owner could be identified when they want to sell the crypto for dollars. But privacy coins can use hidden addresses to make tracing crypto transactions more difficult.
- Scamcoins. Scammers sometimes create and list coins on exchanges with the intent of stealing investors money. They might pay others to promote or “pump” the project or make wild promises, and then abandon the project after enough people buy the crypto. For instance, the Squid Game (SQUID) token played off the Netflix show’s popularity and quickly attracted investors. However, many found out they weren’t able to sell their tokens after buying, and the creators took off with the money.
- Shitcoins. Shitcoins are coins that were created without any real purpose. Unlike meme coins, they don’t necessarily relate to a meme or acknowledge their lack of utility. There’s sometimes disagreement within the crypto community and online forums about whether a crypto is a meme coin or shitcoin.
- Stablecoins. Stablecoins are designed to maintain a peg—a fixed exchange rate—with another currency, such as the dollar. For instance, Tether and USD Coins are supposed to always be worth $1 each, which can make holding stablecoins less risky than a volatile crypto. However, the crash of the Terra UST stablecoin (which dropped to $0) shows that even so-called stablecoins aren’t always stable.
- Utility tokens. Utility tokens offer some specific type of utility on a crypto platform or app. Holders can spend the token like a gift card to receive a product or service from the associated crypto project, or trade it to someone else who wants to use the token. Companies can use the Basic Attention Token (BAT), for example, to pay for advertising on the Brave web browser. And browser users can get paid in BAT for viewing advertisements and send BAT to content creators they want to support.
Why are there so many cryptocurrencies?
There may be a few reasons that there are so many cryptos:
- It’s easy to make a new crypto. Creating a new crypto—a token in particular—can take just a few minutes. The creators can quickly list the new crypto on a decentralized exchange, although making it useful and promoting the crypto project can take time.
- Investors back crypto projects. Another is that investors have been putting money into crypto projects. According to data from Pitchbook, about $30 billion was invested in crypto-related projects in 2021, a large increase from the $6.5 billion invested the previous year. The funds can make creating and launching a new crypto more feasible and attractive.
- Projects get replicated. As crypto becomes more popular overall, specific projects get replicated and built on. For example, “Chef Nomi” created the SushiSwap exchange as a near-replica of Uniswap (many crypto projects have open source code, which makes this relatively easy to do), and added new features. Plus, as groups launch new blockchains, similar projects are created and added to each blockchain.
The top 10 most popular cryptocurrencies other than Bitcoin
Bitcoin remains the top dog. But based on their market capitalization—the number of coins or tokens multiplied by their price—the top 10 cryptos after Bitcoin, as of early June 2022, are:
1. Ethereum (ETH)
Ethereum is the second-largest crypto and the basis for many crypto tokens. Ethereum works more like a platform than a digital currency, allowing developers to create smart contracts that the Ethereum network can automatically run.
2. Tether (UDST)
Tether is one of the most popular stablecoins, and it’s pegged to the U.S. dollar. There are Tether tokens available on different blockchains, and Tether claims to hold billions of dollars in reserves to help it maintain its peg. However, there has also been some controversy around the stability of the reserves.
3. USD Coin (USDC)
USD Coin is another stablecoin that’s pegged to the U.S. dollar and available on several popular blockchains. The Centre Consortium, which was founded by Circle and Coinbase, launched USDC in 2108.
4. Binance Coin (BNB)
The Binance cryptocurrency exchange launched the Binance Coin (BNB) to raise money with an initial coin offering in 2017. While it first was an ERC-20 token on Ethereum, Binance launched its own chain in 2019 and swapped holders’ ERC-20 tokens for BNB tokens on the Binance Chain. Holders can use these tokens to get discounts on the exchange and to purchase goods and services.
5. XRP Ledger (XRP)
Also referred to as Ripple, the XRP coin is the XRP Ledger’s native crypto coin. Ripple, the for-profit company, facilitates fast and low-cost money transfers between countries using XRP. The system is more centralized than some other blockchains because Ripple controls the release of additional XRP coins.
6. Cardano (ADA)
Cardano was created and launched as an alternative to Ethereum. It uses a proof-of-stake (PoS) consensus mechanism to validate transactions, which requires much less energy than Bitcoin or Ethereum’s proof-of-work approach—although Ethereum is transitioning to PoS as well.
7. Binance USD (BUSD)
In addition to the Binance Coin (BNB), Binance launched and supports a stablecoin called BUSD. The coin is pegged to the U.S. dollar and backed by U.S. dollars held in reserve.
8. Solana (SOL)
SOL is the native crypto coin for the Solana blockchain, which competes with Ethereum and Cardano with its support for smart contracts. The SOL coin holders can use their coins for governance, staking, and to pay for transactions on the Solana chain.
9. Dogecoin (DOGE)
Dogecoin is a memecoin that started as a joke but became popular on Reddit’s WallStreetBets and with well-known figures like Elon Musk.
10. Polkadot (DOT)
The Polkadot protocol uses relays, bridges, and parallel chains to connect different blockchains together. The DOT token is the protocol’s native token. It’s a governance token, allowing holders to vote on changes to the protocol, and DOT holders can stake their DOT to help secure the network and earn staking rewards.
The bottom line
People have launched thousands of cryptos over the years, but only a handful consistently make headlines. Investors might dream about finding the next big cryptocurrency while its price is still low, but it’s important to research a coin or token before investing. Finding out who the founders are and what purpose the project is trying to solve could be a good first step.