Since its creation in 2009, Bitcoin has set forth a revolution in the fintech market. Where it once started as a peer-to-peer payment platform without the intervention of any third party, we have now evolved to different types of cryptocurrency projects, each offering its unique value.
Blockchain is an open-source platform, meaning anyone can access it. And for the past few years, developers and programmers around the world have done just that. They have played with blockchain technology to develop different projects, which make cryptocurrency a necessity rather than just an afterthought.
On top of their technological superiority, the surge in prices of different cryptocurrencies is also motive enough for these developers to create the next best blockchain and get some of the action. So, all in all, blockchain technology is open to experimentation, which is why we see different projects popping up every day.
And each of these projects offers something unique to the market, which makes traders and investors speculate on their prices. In this article, I am going to highlight some of the most important types of cryptocurrency projects and how they are going to help shape the future of the world economy.
Table of Contents
Main Types of Cryptocurrency Projects
- Coins and Tokens
If you are new to the crypto world, you might be using the term “coin” and “token” interchangeably. However, when you get right down to the technical side of things, these two terms have different meanings.
Coins on one hand are the native cryptocurrency of the blockchain they run on. For example, the cryptocurrency Bitcoin runs on the Bitcoin network, making it a coin. Ether runs on the Ethereum network, making it another coin.
On the other hand, tokens are created on top of another existing blockchain. For example, Tether runs on the Ethereum network, making it a token. Uniswap is another token that runs on the Ethereum network.
- Stable coins
Cryptocurrencies are known for their volatility, and everyone knows that. While this volatility can be very enticing, it can also cause lots of problems. To tackle the problem of volatility, stablecoins were created.
Stablecoins are a type of cryptocurrency whose value is pegged to another financial commodity like fiat currency. Stablecoins maintain their stability as each token has a reserve asset stored as collateral. For example, Tether is a stablecoin pegged to the US dollar.
For each Tether token issued, a one-dollar bill is bought and stored as collateral. This makes Tether stable so that people can use it as a medium of exchange.
- Utility Tokens
Utility tokens are tokens that are issued by a crypto project during an initial launch as ICO. Think of it as a kind of coupon that can be bought in the initial stages and redeemed in the future for special perks and rights within the project. Filecoin, Siacoin, and Civic are some examples of utility tokens.
- Governance Tokens
The reason why cryptocurrencies became so famous is that they put the power back in the hands of people. Governance tokens are a way to enhance that power as holding governance tokens gives a user voting power to have a say in what happens next for a crypto project.
While they give the holder voting power, governance tokens have no actual intrinsic value. It means that despite how many governance tokens you hold, you can’t sell them on the market or hold them as an investment.
- Layer 1 and Layer 2
If you are learning about web3 and crypto in general, you might have heard about the layer 1 and layer 2 projects. These are the types of cryptocurrency projects that are currently the most important.
A layer 1 project is a primary blockchain that acts as infrastructural support for other projects to build on. However, its basic reason for creation is to be a solution for improving the base design and protocol. The reason why there are so many layer 1 protocols is that most blockchains are suffering from the issue of scalability.
Blockchain developers around the world are trying hard to come up with a solution to make cryptocurrencies fast and cheaper. In that effort, different layer 1 projects have been created which try to tackle and answer the problems in their own unique way.
For example, the most famous layer 1 blockchain protocols are Bitcoin, Binance Smart Chain, Ethereum, Avalanche, Cardano, Litecoin, and Near Protocol.
On the other hand, layer 2 protocols are a secondary blockchain that is built on top of an already existing blockchain. The main goal of these protocols is to solve and improve the scalability issues, transaction speed, and high gas fees of the famous crypto network.
So, these protocols are just an improvement to layer 1 blockchains. For example, while Ethereum might be the most adopted layer 1 blockchain, it is still not able to process thousands of transactions per second. The polygon network or MATIC is a layer 2 blockchain built to address this issue for Ethereum.
- Non-Fungible Tokens (NFTs)
Last but not least, another famous type of crypto, which has recently taken the world by storm are NFTs. Simply put, NFTs are tokens that have been built on top of a blockchain that can’t be replicated. So, there is only one copy available in the world.
Developers took this concept and implemented it to how people see value to drive the price of NFTs. For example, NFTs can be represented by any real-world items ranging from artwork, real estate, personal items, or even what you post on social media.
Which Project is the Most Valuable?
If you are looking to invest in cryptocurrency, you might be thinking about which project or type of crypto should I go for. As there is a plethora of cryptocurrencies out there, the best strategy is to understand what coin or token is best for you to put money in. Crypto markets operate in cycles. Each type of crypto has its ups and down. So, it would be best if you make informed decisions surrounding how the market works and find a way to reduce risk as much as you can.
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