Cryptocurrencies have been around for nearly 15 years if we take as a starting point the launch of Bitcoin in early 2009. During this time, they have seen a series of dizzying highs and terrifying lows while working their way from a strange hobby of a few enthusiasts to, well, an almost mainstream alternative asset class. Probably, even your grandma and grandpa have joined the frenzy and are trying to navigate the shifting crypto landscape. Today there are more than 20,000 different cryptocurrencies with various functions and features: some of them primarily serve as investment vehicles, others are used to transfer funds around the world, and still others are just a means of payment in a specific blockchain. It is very easy to get lost in this vast sea of options and opportunities, so we have put together a short guide on the main types of cryptocurrency with a detailed overview of 11 top players by market cap.
While most cryptocurrencies are based on blockchain technology, they use it in different ways. Depending on this factor, they can be broken down into two major categories: coins and tokens.
Coins are cryptocurrencies that run on their own blockchain. Bitcoin is the king and forefather of all cryptocurrencies and is often treated as a unique cryptocoin outside any category, whereas the rest of the coins are referred to as altcoins, that is, alternatives to Bitcoin. However, while many altcoins are indeed very similar to Bitcoin, others are significantly different from it. For example, Solana’s SOL and Avalanche’s AVAX are staked rather than mined like Bitcoin. Similarly, the Ether supply is not capped, yet Bitcoin has a limited supply of 21 million coins.
Tokens are also digital units of value, but, unlike cryptocoins, they do not have their own independent blockchain. They are issued on existing smart contract platforms such as Ethereum and Avalanche immediately in full emission, which means they cannot be mined. Tokens can be virtual currencies, shares or other types of securities, works of art, real estate, and other assets. They are created and used for a variety of purposes, e.g. to raise funds for a project or get access to services provided within a specific platform or app.
There is also a special kind of tokens – non-fungible tokens, or NFTs. What does the word “non-fungible” mean? A token is a single record in the registry, and by default all tokens on the blockchain are fungible, meaning they can be replaced with other tokens of the same kind without any loss in value. On the contrary, each NFT is unique and impossible to replace with another asset. NFTs can represent digital or physical artworks, in-game objects, collectibles, and more.
Blockchain is a distributed ledger that stores encrypted data shared across a network of connected computers, which are called nodes. All records in a blockchain are grouped into blocks that are linked together by means of cryptography. Each new block contains data from the previous block.
Blockchain is used to store and transmit digital data. These can be both financial and non-financial assets like images or in-game artifacts. Within blockchains, each asset is assigned a unique identifier verifying that ownership of this asset belongs to a specific person. The data cannot be tampered with, deleted, or modified as this will violate the integrity of the chain.
Initially, blockchain had been a niche technology used to sign digital documents, until enthusiasts came up with an idea to leverage it for money transfers without banks and other intermediaries. This is how cryptocurrency was born. Blockchain technology is used to both create new coins or tokens and trade the existing ones.
Interestingly, crypto wallets do not actually store any cryptocurrencies – they store information about all transfers in the network. If the blockchain has a record of a certain amount of coins having been received in a particular wallet, these coins can be sold or transferred. If there is a record of the transfer from the wallet, those coins are gone. All users have access to the entire history of transactions, which eliminates the possibility of data forgery and fraud. If a bad actor conceived a plan to change or delete the transaction data, they would have to do it on all computers in the network at once, rather than on one server. This is how decentralisation works. Imagine a bank where each client has a copy of all payments and transfers – this would be a blockchain.
Below is an overview of the top 11 cryptocurrencies by market capitalization according to CoinMarketCap.
Bitcoin is the oldest and most expensive cryptocurrency. It was born on 3 January 2009, when the first block and first 50 coins were generated. The first cryptocurrency is distinguished by a limited supply embedded in its program code: 21 million bitcoins will be issued in total, and not a coin more. This partly explains Bitcoin’s incredibly high price, due to which it is used mainly as an investment vehicle rather than a means of payment. As of August 2023, Bitcoin has a market cap of more than half a trillion US dollars. Although this is not its best accomplishment, this figure allows Bitcoin to be far ahead of the runner-up.
Ether is the native currency of the Ethereum blockchain, which was designed to create and operate decentralised applications (dApps) using smart contracts. Ethereum has two types of accounts: wallets also known as externally owned accounts and smart contracts. Both of them can make transactions and store cryptocurrencies. The main difference is that the coins on the balance of a smart contract are managed by an algorithm, not by an individual, so the smart contract cannot be altered. Read more about smart contracts below.
Tether was the world’s first stablecoin, which is a cryptocurrency whose exchange rate is pegged to another asset, including fiat money. Tether was designed as an asset backed by the US dollar in a 1:1 ratio. Like other stablecoins, Tether is used by crypto traders who want to protect themselves from the volatility of other crypto assets. However, its stability is still questionable. In addition, as it allows users to avoid additional costs and delays when converting between cryptocurrency and fiat, Tether is a convenient means for transferring funds between countries.
Binance Coin is the cryptocurrency that powers the Binance ecosystem and is one of the most popular utility tokens in the world. The coin can be used to book hotels, buy virtual gifts, create smart contracts, or pay transaction fees on the trading platform. Binance uses a BNB auto-burn mechanism to reduce the total supply to 100 million coins. This mechanism provides more transparency and predictability to BNB users.
XRP is the cryptocurrency developed by the Californian crypto project Ripple, which creates tools to tokenize payments. Ripple’s mission is to help financial institutions and consumers simplify transactions by using the XRP token and solving the three main problems of the traditional bank wire transfers: high fees, difficulty in converting between currencies, and long processing time.
USD Coin is the centralised cryptocurrency pegged to the US dollar. One USDC is always equal in value to one dollar. Like Tether, USD Coin is backed by fiat reserves. Issuers are required to hold the sufficient dollar reserves to cover all issued tokens. These reserves are regularly audited. USD Coin is commonly used for trading on crypto exchanges, saving, lending, and investing in DeFi apps, as well as for international transfers as a way to move fiat from one country to another.
ADA is the native token of Cardano, a “third-generation” blockchain attempting to solve the scalability problems encountered by the first- and second-generation blockchains like Bitcoin and Ethereum, correspondingly. Named after the 19th-century mathematician Ada Lovelace, this token serves as both a cryptocurrency and a way to transact on the Cardano network, just like Ether is used on the Ethereum platform. Cardano uses the Ouroboros Proof-of-Stake consensus algorithm, which consumes less energy than Bitcoin’s Proof-of-Work while ensuring reliability and security of the blockchain.
Created as a joke, Dogecoin is a cryptocurrency based on one of the most famous Internet memes featuring a Shiba Inu dog with funny captions. Despite its humorous nature, the coin has acquired a dedicated community of users and entered the top 10 cryptocurrencies by market capitalization. Like Bitcoin, Dogecoin uses its own blockchain where blocks are added and verified through mining. However, this cryptocurrency does not have a maximum supply, and there are already over 130 billion dogecoins in circulation.
SOL is the native token of the Solana blockchain network, which provides fast transactions and high throughput using groundbreaking solutions to increase speed such as the Proof-of-History algorithm for time synchronisation and parallel processing. Solana is considered one of the most performant blockchains in the world and is therefore suitable for those who value their time above all else.
Initially, TRX tokens were deployed on the Ethereum platform, but a year later they were moved to their own TRON network that was created to provide full ownership rights to digital content creators who usually receive only a small fraction of the revenue. On the TRON network, which powers smart contracts and dApps, anyone can offer content and be rewarded for it with digital assets. Thus, the creator and consumer interact directly, without intermediaries, while fees are minimal or non-existent.
Toncoin is a cryptocoin with a turbulent history. The project was conceived by Telegram founder Pavel Durov as a way to monetise the free messenger. To bring the idea to life, more than $1.5 billion of investments were attracted, but the SEC turned down the project having recognised the token as an illegal security rather than a utility coin. However, by that time the idea had gained plenty of supporters who eventually continued developing the project, which they rebranded. As a result of their efforts, a multi-blockchain architecture-based platform emerged with a complete ecosystem of products and services from NFTs and staking to marketplaces and multifunctional wallets, as well as with its native TON coin to pay for smart contracts, use dApps and participate in governance. The current developers have an ambitious goal of making the blockchain as easy-to-use as a mobile app.
A stablecoin is a digital currency whose value is pegged to another “underlying” asset. The underlying asset can be fiat money such as the US dollar or Japanese yen, precious metals like gold or platinum, oil, or another cryptocurrency. Stablecoins are specifically designed to overcome the high volatility of other cryptos and maintain a fixed price.
All stablecoins can be divided into two broad categories: centralised and decentralised, or algorithmic, stablecoins. The former are issued under the control of the project top managers and are linked to the underlying asset through the collateral-backed reserves. In order for the value of each token to remain at the same level, the company must hold reserves equal to the amount of issued cryptocurrency: physical money, precious stones, metals, or other assets that are stored in real storage and are regularly audited. This type includes the aforementioned Tether and USD Coin.
Decentralised stablecoins are controlled by algorithms that maintain the stability of the exchange rate and, if necessary, regulate the supply. This model is much less common as it is harder to manage. The undeniable advantage of stablecoins is that they can be used for everyday payments since their value is less subject to sharp fluctuations. Moreover, they serve as a kind of bridge between fiat and crypto, allowing users to quickly and cheaply convert one into another and thus transfer funds around the world.
A smart contract is a computer algorithm designed to generate and transmit information on the ownership of certain assets. It helps execute contracts on the blockchain making sure that both parties comply with the terms of the contract. Since the algorithm is integral to the blockchain, the rules and conditions for making transactions cannot be changed and are binding on all participants.
To make a deal in the real world, you have to turn to a lawyer or notary, draw up a pile of papers, and spend a lot of time and money. Smart contracts help you avoid these difficulties, including external intermediaries. Imagine you want to buy a laptop from a seller in another city or country. The seller may be reluctant to send the device because there are no guarantees that you will pick it up, so they might waste time and money on shipping both ways. They ask you to make an advance payment, but you are hesitant to transfer money as you have no guarantee that the seller will actually send the laptop.
A smart contract can come to the rescue. The terms and conditions of your agreement are clearly specified in code: e.g. after you make a specific advance payment, the seller undertakes to send you the product at a specific price and within a specific time, and you are obliged to pick up the parcel within a specific time and transfer the rest of the money. The smart contract independently controls the execution of predefined terms and charges penalties to the parties if they fail to comply. Smart contracts are deployed in a decentralised network like Ethereum or TRON.
Some cryptocurrencies are created specifically to meet the needs of players in certain industries. For instance, TRON focuses on entertainment content creators and consumers, while IOTA concentrates on the Internet of Things. Next, we will take a closer look at the RippleNet blockchain and its XRP cryptocurrency designed for the banking sector.
As already stated, Ripple’s main idea was to provide faster and more cost-effective global payments. How exactly is this idea implemented? First, Ripple solves the problem of high fees (up to $50) for traditional bank transfers. Payments in tokens on the blockchain are made without any intermediaries, which makes it possible to reduce commissions. The average cost of a transaction on RippleNet is $0.0002. The fee may vary depending on the load on the network, but it is still much lower than that of banks or even Bitcoin.
The second problem solved by Ripple is currency conversion. Let’s say you live in the UK and want to transfer £200 in yen to a friend in Japan. To make such transactions, banks have to keep a stock of foreign currencies. It is expensive and inconvenient, meaning the transfer will take a long time, and the fee will be high. If the bank converts the pounds to XRP and sends it to the recipient’s bank, your Japanese friend will be able to exchange the tokens for yen at their bank. Ripple already cooperates with a number of forward-thinking banks and payment services, but even if your bank is not one of them, you can simply buy XRP on a peer-to-peer platform and send the tokens directly to another person’s crypto wallet.
Finally, bank transactions can take up to three business days to process, while transactions in XRP take just a few seconds. Users do not have to wait for the transaction to be approved, converted into the desired currency, and sent to a bank on the other side of the world. All they need to do is enter the recipient’s wallet address and the number of tokens and hit the send button. Apart from the facilitation of cross-border transfers, Ripple is developing tools to create central bank digital currencies (CBDCs). Montenegro and Colombia have already used the company’s services.
Cryptocurrencies are a fast-growing market, so crypto investments have the potential to generate high returns, but also come with significant risks. Cryptocurrencies can be highly volatile and unpredictable, making it difficult for investors to manage their portfolio. Therefore, it is very important to explore the best investment options that suit your risk appetite and investment goals.
It is generally recommended to diversify your investment portfolio to reduce risks. For example, you might consider investing in a mix of established cryptocurrencies like Ether and promising new cryptocoins with strong development teams. This method helps balance risk and reward as established coins provide more stability but potentially less growth, while newer coins may show higher upside potential but come with more risk.
Also, avoid emotional investing in cryptocurrency – it is really not the best object for impulsive purchases. Stick to a clear strategy, don’t follow the crowd, and don’t make decisions based solely on other people’s actions. Finally, act only when you know what to do. Study the features and operation of cryptocurrencies you are interested in, and track the trends of the cryptocurrency market and all important metrics.
The latter include mainly price, trading volume, and market capitalization. Price changes can give you a clue as to where the market is heading. Trading volume is the amount of cryptocurrency that changes hands over a specific period of time. The high figure means a lot of activity in the market, which can indicate large price fluctuations and trading opportunities. Low trading volume may mean that the market is calm and prices are more stable. Market capitalization is the total value of all cryptocurrency units that are currently in circulation. It shows the size of the market: large markets are more stable and less subject to price fluctuations, while small markets are more volatile but offer more opportunities for big gains – and big losses, of course.
Cryptocurrencies are still in early adoption and have limited use in the real world, which makes their long-term viability uncertain. However, as the technology behind cryptocurrencies develops and becomes more accessible, we may see an increase in their adoption and use, which could lead to their long-term success. Meanwhile, it is important to understand what’s going on in the cryptocurrency market to make informed investment decisions.
A coin is a cryptocurrency that has its own blockchain, while a token is a cryptocurrency created on a third-party blockchain platform. For example, Ether is a coin, and Tether, which is issued on the Ethereum blockchain, is a token.
The value of a stablecoin is linked to the value of another asset such as gold or the US dollar. It is backed by the reserves of the underlying asset equal to the amount of issued stablecoins. These reserves are regularly audited.
Smart contracts are programs that are automatically executed when predetermined conditions are met. Smart contracts run on a number of blockchain platforms, including Ethereum, Binance Smart Chain, Tron, Cardano, and others. The deployment fees are paid in the currency of the platform, also known as gas.
Fiat currency is traditional money such as dollars, euros, or yuan, which is issued and controlled by government authorities around the world. Cryptocurrency, on the contrary, is most often not controlled by anyone and operates on a blockchain. This system enables automated transactions with no intermediaries between the sender and recipient of assets.
No, some cryptocurrencies are centralised, which means that their issuance, storage, and burning are managed by a company or organisation. Typically, these include stablecoins such as Tether and USD Coin since in this case, the issuer is responsible for holding the stock of assets to which the cryptocurrency is pegged. The advantages of centralisation are higher transaction processing speed and lower fees, but it gives less freedom, transparency, and privacy because your account can be blocked at any time, just like at a bank.
Ideally, you should consult a financial advisor, but if this is not an option, try the following: decide on your goals and strategy, learn blockchain technology and how cryptocurrencies work, track the market and important metrics, diversify your portfolio, and finally avoid impulsive purchases of cryptocurrencies.
Cryptocurrency investments can be risky due to market volatility, the lack of regulation, and the possibility of fraud and scams. Choose a secure trading platform and stay up to date with the latest crypto news and regulations.
The information is not intended to provide investment recommendations and opinions of any kind, and the financial instruments, transactions, or digital assets mentioned in it should not be considered as any kind of advice or offer to act or refrain from acting. It is your responsibility to determine whether a particular investment matches your interests, goals, and acceptable risk level. CFPS is not responsible for possible losses in the case of making transactions or investing in cryptocurrencies mentioned in the article and does not recommend using this text as the only source of information when making an investment decision.