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Types of cryptocurrencies every novice investor needs to know about


Cryptocurrencies is the name of several thousand projects, each of them unique in its own way. Before starting to invest in cryptocurrencies, we recommend learning about their basic types. For your convenience, Wellcrypto experts divided cryptocurrencies by their areas of their use and provided descriptions of features of the most popular types of cryptocurrencies.

Payment systems

The first cryptocurrencies, such as Bitcoin (BTC) and its forks Litecoin (LTC) and Bitcoin Cash (BCH) were developed as universal blockchain-based means of payment. Their specific feature is that the money and valuables can be directly exchanged between the users (Peer-to-Peer). Removal of intermediaries makes transactions quick and cheap. As the technology developed, more advanced payment cryptocurrencies, such as Ripple (XRP) and Stellar (XLM) emerged, which are now actively used even by the traditional financial companies and banks.

Stablecoins

The majority of cryptocurrencies are volatile, which creates difficulties for traders at the crypto exchanges. For their convenience, stablecoins, digital analogs of traditional currencies, were created. Their main purpose is to make the exchange of cryptocurrencies between each other and for traditional currencies simpler. As a rule, stablecoins represent the rate of US dollar, Euro, British Pound, Ruble, etc., at a 1:1 ratio. Today, many large exchanges have their own stablecoins. Among the most popular are Tether (USDT), USD Coin (USDC), Binance USD (BUSD), TrueUSD (TUSD), Dai (DAI).

Smart contract
platforms

Blockchain platforms are level 2 cryptocurrencies, which have a considerably expanded area of use of the blockchain. Ethereum (ETH) was the first large platform. Hundreds of tokens solving a multitude of various issues in the sphere of finance, international transportation, authorization of ownership rights, gaming, etc. are based on Ethereum. A token is essentially a smart contract functioning inside the mother platform. As of now, in addition to Ethereum, the largest smart contract platforms include Cardano (ADA), Solana (SOL), Ethereum Classic (ETC), Neo (NEO), Tron (TRX), Eos (EOS), Iota (MIOTA), Algorand (ALGO), Klaytn (KLAY), Tezos (XTZ), Avalance (AVAX).

Exchange tokens

This type of cryptocurrencies is created at the cryptocurrency exchanges and main functions only at such exchanges. Exchange tokens give the users of the platform certain benefits, usually lower fees, a possibility to participate in the Initial Exchange Offering (IEO), and participation in special offers of the exchange. Binance has the most popular and multifunctional token – Binance Coin (BNB), which is often listed in the Top 5 cryptocurrencies by capitalization. Other popular exchange tokens are Uniswap (UNI), Huobi token (HT), Crypto com (CRO), FTX token (FTT), Unis Sed Leo (LEO), PancakeSwap (CAKE).

Decentralized finance

These blockchain-based solutions are designed to transform the world of finance. They solve different tasks in the sphere of payments, crediting, exchange, forecasting. Also, you can use them to earn passive income through staking and farming. Here are some of the most successful DeFi projects: Aave (AAVE), Maker (MKR), Cardano (ADA), Amp (AMP), Polygon (MATIC), Compound (COMP), PancakeSwap (CAKE), Binance coin (BNB), Uniswap (UNI).

Meme coins

There are the cryptocurrencies that were inspired by popular online jokes, and thanks to the active community and capital investment, the value of such a meme coin could soar by hundreds and even thousands percent. The best examples of meme coins are Dogecoin (DOGE) and Shiba Inu (SHIB). Because of their volatility, you can become rich with meme coins or lose a large part of your investment.

There is a special category of projects with specific features:

  • Polkadot (DOT), Cosmos (ATOM) are the platforms for creating other blockchains and exchanging data between them. Their task is to solve one of the biggest issues of the industry – establishing direct data exchange between different blockchain solutions.
  • Chainlink (LINK) is a decentralized solution for connecting the Ethereum blockchain with external information. Chainlink helps find, verify, upload information to smart contracts using API and other channels.
  • Polygon (MATIC) is a Level 2 solution that improves scalability of the Ethereum blockchain.
  • Internet computer (ICP) is a platform for decentralized cloud computing that allows for data processing at the speech of the Internet.
  • Theta (THETA) is a decentralized video hosting that allows the users to share computer resources and equipment for streaming. In exchange for resources, the users can earn tokens of the platform.
  • VeChain (VET) is a decentralized solution for controlling supply chains of goods and services.
  • Filecoin (FIL) is a decentralized data warehouse that allows users to share their computer capacity in exchange for tokens.
  • Decred (DCR) is a cryptocurrency that has a built-in decentralized platform for voting. Token owners have the voting right when decisions regarding the project are made.
  • Monero (XMR) is an anonymous cryptocurrency that keeps information about transactions and balances of the users fully private.