This is one of the first difficulties beginners encounter: the word “cryptocurrency” has become so broad that it is no longer enough to describe an asset.
Some cryptocurrencies have their own blockchain. Others are simply tokens created on Ethereum, Solana or another network. Some are primarily used for payments. Others power applications. Several represent real-world assets. And meme coins may offer virtually no additional technical function while reaching market capitalizations of several billion dollars.
Understanding the types of cryptocurrencies therefore makes it easier to read the market, assess risks and, above all, avoid comparing assets that have almost nothing in common.
Coins and tokens: the first distinction to understand
The first distinction is technical. To understand the logic, BrefCrypto’s complete guide to Bitcoin is a good starting point: Bitcoin has its own network, and BTC is its native currency.
We generally refer to an asset as a coin, or native coin, when it belongs directly to its own blockchain.
BTC is Bitcoin’s native currency.
ETH is Ethereum’s native currency.
SOL is Solana’s native currency.
These assets are often used to pay network fees, contribute to network security or transfer value directly.
A token, by contrast, is created on top of an existing blockchain using a smart contract or a comparable mechanism.
USDT, for example, can circulate as a token on several networks.
UNI is an ERC-20 token on Ethereum.
Thousands of other assets have been deployed without creating their own blockchain.
Ethereum explains that the ERC-20 standard provides a common set of rules allowing fungible tokens to operate compatibly with the network’s wallets and applications.
The difference matters.
A blockchain must provide its own consensus, validators or miners, infrastructure and rules.
Creating an ERC-20 token is much simpler.
This partly explains why there are far more tokens than genuinely independent blockchains.
In everyday language, however, both are often called “cryptocurrencies.”
Bitcoin belongs to the monetary cryptocurrency category
The first major category consists of cryptocurrencies whose central function is to serve as digital money or monetary assets.
Bitcoin is the leading example.
Satoshi Nakamoto’s white paper presents it as a peer-to-peer electronic cash system allowing payments to be sent directly between users without necessarily going through a financial institution.
Bitcoin.org still describes it as a payment network and a new form of money operating without a central authority.
BTC has several characteristics that reinforce this monetary function: a maximum supply programmed at 21 million units, predictable issuance, the ability to make transfers without a bank and a global network operating 24 hours a day.
Historically, Litecoin has followed a broadly similar model, with different technical parameters.
Bitcoin Cash also seeks to prioritize payment use.
The common feature of this group is that the native currency itself is the network’s main product.
This contrasts with Ethereum.
ETH can of course be sent like money, but Ethereum was built as a much broader programmable infrastructure.
A payment cryptocurrency should therefore be assessed based on factors such as security, liquidity, scarcity, censorship resistance, transaction costs and network acceptance.
The number of DeFi applications is not necessarily its main criterion.
Ethereum and Solana are infrastructure cryptocurrencies
A second group consists of the native cryptocurrencies of programmable blockchains.
Ethereum is the leading historical example.
The network allows smart contracts to be deployed—that is, programs that operate directly on the blockchain. Ethereum.org explains that a smart contract contains code and data at a blockchain address and automatically executes the rules for which it was programmed.
ETH serves several purposes.
It pays the gas required for transactions.
It allows validators to participate in staking.
And it circulates as an asset within applications.
Ethereum.org specifically notes that ETH is the network’s native cryptocurrency, used for gas and to secure Ethereum through staking.
Solana, Avalanche and other networks follow a broadly comparable model, despite having very different architectures.
Their native tokens sometimes resemble digital fuel.
The more users employ a network’s applications, the more they need the asset used to pay for operations.
This analogy nevertheless has limits.
A blockchain token is not physical oil.
Its supply, monetary policy, staking and potential burn mechanisms can significantly alter its economics.
The risk is also different: investing in an infrastructure cryptocurrency partly means betting on the adoption of a technology ecosystem.
A network can be technically excellent and still lose the battle for users and developers.
Stablecoins are primarily designed not to rise
This is probably the strangest category for someone discovering crypto.
While Bitcoin or Ethereum are often bought in the hope that their price will rise, a stablecoin is generally considered successful when its price barely moves.
USDT and USDC seek to remain close to 1 dollar.
BrefCrypto’s article on the advantages and risks of stablecoins shows why this stability is useful for trading, transfers and DeFi.
Tether says its tokens are pegged 1:1 to their reference currency and backed by its reserves.
There are, however, several types of stablecoins.
Fiat-backed stablecoins rely on financial reserves held by an issuer.
Crypto-collateralized stablecoins use other crypto-assets as collateral, generally with overcollateralization designed to absorb their volatility.
Algorithmic stablecoins attempt to maintain their value through economic mechanisms and changes in supply. This last category has experienced spectacular failures, notably TerraUSD in 2022.
A stablecoin therefore has a completely different profile from Bitcoin.
It may be much less volatile.
It often reintroduces greater counterparty risk and dependence on an issuer.
The word “stable” describes its price objective.
Not an absolute absence of risk.
Utility tokens provide access to a service
Another major category is made up of utility tokens.
The principle is simple: the token serves a function within a product, protocol or network.
This function can take different forms.
Paying for a service.
Accessing a feature.
Providing collateral.
Receiving benefits.
Compensating infrastructure participants.
Consider a blockchain network that provides decentralized storage.
Its token may be used to pay storage providers.
An oracle network may use a token to align economic incentives among different participants.
A blockchain game may have a currency used to purchase digital items.
This category is very broad.
That is also why the term “utility” should be used cautiously.
A project may claim that its token has utility simply because it provides a 5% discount on a service.
This does not automatically mean that significant economic demand for the token will exist.
The relevant question is therefore:
does the product genuinely need the token?
If the application would work exactly as well with USDC or a traditional currency, the token’s economic necessity may be less obvious.
Genuine utility should ideally create a lasting reason to hold or use the asset.
Not merely a marketing justification.
Governance tokens provide voting power
Decentralized finance popularized another category: governance tokens.
They allow holders to participate in certain decisions concerning a protocol.
UNI is one of the best-known examples.
Uniswap explains that UNI holders can participate in protocol governance, notably by voting or delegating their voting power.
Depending on the protocol, governance may decide on matters such as:
the use of a treasury;
certain fees, upgrades, incentive programs and deployments on new blockchains.
The concept makes the token resemble a participation right.
But it should not automatically be equated with a share.
Owning UNI does not mean owning a legal stake in Uniswap Labs, as a shareholder would own shares in a listed company.
The rights depend specifically on the smart contract and governance system.
Participation rates are also an issue.
A large proportion of holders never vote.
A few large addresses or delegates can concentrate enormous power.
And governance presented as decentralized may remain dependent on a development team or foundation.
In short, the token potentially provides power.
It is still necessary to examine exactly what kind of power.
DeFi tokens represent an entire financial economy
Governance tokens represent only one part of DeFi.
Decentralized finance produces several additional categories.
There are protocol tokens.
Tokens representing deposits.
Liquidity assets and staking-related tokens. In addition, there are tokens representing financial positions.
Ethereum enabled this explosion because its smart contracts can build exchanges, lending markets and other instruments without a company having to manually manage every transaction. Ethereum.org specifically lists financial applications among the main uses of smart contracts.
Consider a lending protocol.
A user deposits an asset.
They may receive a token representing their claim on the deposit.
That token can itself be used elsewhere.
Finance then becomes composable.
An asset created by one protocol becomes the input for another.
This capability explains DeFi’s power.
It also explains part of its risk.
A portfolio may simultaneously depend on the stablecoin, lending protocol, smart contract, oracle and a second protocol using the token received.
Each layer adds a new possibility of failure.
Not all “DeFi cryptocurrencies” should therefore be put in the same category.
Some are used for governance.
Others directly represent an asset or position.
Still others are used solely to distribute rewards.
Exchange tokens are tied to a platform
Centralized platforms have also created their own category.
BNB has historically been associated with Binance.
BGB is linked to the Bitget ecosystem.
Other exchanges have or have had their own token.
Their functions may include fee discounts, access to certain campaigns, new-token launch programs or various utilities within the ecosystem.
In some cases, the token later develops a much broader life.
BNB, for example, became the native currency of BNB Chain, far beyond a simple discount on exchange fees.
These assets nevertheless create concentration risk.
If a significant portion of the token’s value depends on a platform’s growth, reputation and activity, a problem affecting that platform may weigh directly on its market.
An exchange token should therefore not be analyzed exactly like Bitcoin.
Bitcoin can continue operating without a particular company.
An ecosystem token may depend much more directly on a commercial operator.
To understand this difference between a network and a platform, BrefCrypto’s guide to how a crypto exchange actually works distinguishes centralized intermediaries from blockchain protocols.
The value of an exchange token ultimately rests on the utility assigned to it and trust in the ecosystem to which it belongs.
Meme coins sometimes embrace the absence of utility
Dogecoin was created in 2013 as a joke.
Since then, an entire category has emerged.
Shiba Inu, PEPE and thousands of other assets rely primarily on cultural references, communities, celebrities, animals, Internet trends or events.
Their distinctive feature is interesting.
They can reach enormous valuations without their technology necessarily providing any particular innovation.
The community itself becomes part of the product.
This does not mean that no use can be added later. Dogecoin, for example, has its own blockchain and can be used for payments.
But demand for meme coins remains largely speculative and cultural.
That is why the risks are high.
South African hedge fund Peregrine Capital recently distinguished Bitcoin from meme coins, likening a large portion of the latter to gambling.
The remark comes from a fund manager and therefore represents his assessment, not a universal technical definition.
It nevertheless illustrates a fundamental difference.
A Bitcoin investor can build a thesis around scarcity and the network.
An investor in a meme coin often depends more heavily on attention continuing.
And on the Internet, attention can shift very quickly.
Privacy coins seek to conceal more information
Bitcoin is often described as anonymous.
That is not really accurate.
Its blockchain is public.
Anyone can observe transactions and addresses, even though they do not directly display the owner’s name.
Bitcoin is therefore better described as pseudonymous.
Privacy coins were built to go further.
Monero is the best-known example.
The project describes XMR as a cryptocurrency focused on private, censorship-resistant transactions. Transactions use stealth addresses, ring signatures and RingCT in particular to conceal different pieces of information about the sender, recipient and amount.
This privacy provides a genuine use case.
A cash payment does not automatically publish your financial balance to the merchant.
A fully transparent blockchain, by contrast, can make far more information observable.
Privacy coins therefore seek to restore a form of monetary privacy.
This feature also creates a regulatory challenge.
Exchanges must comply with anti-money-laundering and sanctions obligations.
Some have therefore restricted or delisted several privacy-focused assets in certain jurisdictions.
The same attribute may thus be viewed as an essential function by the user and as a compliance difficulty by a regulated intermediary.
RWAs represent real-world assets
Real World Assets, or RWAs, are among the categories reshaping the boundary between traditional finance and crypto most significantly.
The idea is to represent on a blockchain an economic right linked to an asset that exists outside the blockchain.
Treasury bills.
Money market funds.
Private credit.
Gold.
Real estate.
Shares or other securities, depending on the framework chosen.
Tokenization does not magically transform the asset.
A tokenized Treasury bill remains economically linked to the Treasury bill that exists within the traditional legal system.
The token mainly makes the right easier to program and transfer on blockchain infrastructure.
BrefCrypto’s article on major crypto narratives around stablecoins, RWAs and new infrastructure shows why tokenization has gradually become more than a simple speculative theme.
RWAs are interesting because they almost reverse the historical logic.
At first, crypto created entirely new assets.
With RWAs, the blockchain becomes a technical layer for traditional assets.
The risks are therefore twofold.
The security of the blockchain must be assessed.
But so must the legal reality of the underlying asset, the custodian, the issuer and the right to redemption.
The token may function perfectly while the company responsible for holding the real asset encounters a problem.
The link between on-chain and off-chain is therefore essential.
NFTs are also tokens, but non-fungible ones
Another type of crypto-asset is the NFT, or non-fungible token.
It is important to distinguish it from traditional cryptocurrencies.
One bitcoin is fungible.
In principle, 1 BTC can be replaced by 1 BTC.
The same logic applies to 1 USDC and another USDC.
An NFT, by contrast, represents a distinct unit.
Each token has an identifier or characteristics that distinguish it.
This feature makes it possible to represent digital artworks, in-game items, tickets, access rights, blockchain domain names or certificates.
An NFT can therefore be scarce without being money.
Ethereum became one of the main infrastructures for this economy precisely because smart contracts make it possible to create customized assets. Ethereum.org lists NFTs among the asset classes built on its network.
Obviously, not all NFTs are useful or valuable.
The speculative market of 2021 showed how an image associated with a token could reach a spectacular valuation and then lose a large portion of its value.
The technical concept is nevertheless broader than JPEGs.
A non-fungible token is simply appropriate when the goal is to represent an individualized digital object rather than an interchangeable currency.
Wrapped tokens move an asset to another environment
What happens when a user wants to use Bitcoin in an Ethereum application?
BTC and Ethereum are two different networks.
Native BTC is not an ERC-20 token.
One solution is to create an Ethereum-compatible representation of Bitcoin.
This is the principle behind wrapped tokens.
An asset is locked or held by a given mechanism, and an equivalent representation is then issued elsewhere.
Wrapped Bitcoin, or WBTC, popularized this model.
Ethereum itself has WETH.
Ethereum.org explains that WETH is an ERC-20 token representing ETH on a 1:1 basis, allowing applications designed to handle ERC-20s to work more easily with a standardized representation of ether.
This category improves interoperability.
It also adds risk.
When the represented asset depends on a custodian, bridge or smart contract, the holder does not face exactly the same risk as when holding the native asset.
1 WBTC seeks to represent 1 BTC.
It is nevertheless not BTC directly recorded on the Bitcoin blockchain.
This distinction can become very important if the intermediary or wrapping mechanism fails.
Liquid staking tokens represent staked assets
Proof of Stake created another category: liquid staking tokens, or LSTs.
Consider Ethereum.
A user can stake ETH to contribute to network security and receive rewards.
The problem is that staked assets may lose some of their immediate liquidity or become less convenient to reuse elsewhere.
Protocols have therefore created tokens representing the staked position.
The user deposits ETH.
In return, they receive a token representing their exposure to staked ETH and its associated rewards.
This token can then circulate within DeFi.
Capital becomes much more flexible.
But a new layer of risk appears.
Native ETH carries Ethereum risk.
A liquid staking token adds the risk of the protocol managing the mechanism, its smart contracts and potentially its validator structure.
Once again, we find the principle of composability.
DeFi creates representations of representations.
This improves capital efficiency.
It also makes portfolios more difficult to analyze.
An asset that looks like “ETH” may be a financial product several layers above native ETH.
The token’s name is therefore never enough.
It is necessary to understand what it actually represents.
Tokens linked to physical infrastructure form an emerging category
The sector has also developed DePIN, short for Decentralized Physical Infrastructure Networks.
The idea is to use a blockchain and tokens to coordinate distributed physical infrastructure.
Telecommunications.
Computing.
Storage.
Sensors.
Mapping.
Energy.
A participant can provide a physical resource and receive tokens in return.
The token is then used to create an economic incentive that helps develop the network without a single company necessarily owning all of the infrastructure.
This model is quite different from a meme coin.
The token is supposed to be connected to the production or use of a real service.
This obviously does not guarantee success.
The main challenge is to create genuine demand for the infrastructure once promotional rewards are reduced.
A network can attract huge numbers of providers because it distributes large amounts of tokens.
If almost no customers pay to use the infrastructure, the economics can become fragile.
DePINs clearly illustrate one of the crypto market’s most important questions:
does the token create the activity, or does the activity create demand for the token?
The second situation is generally more sustainable.
Gaming and metaverse tokens have their own economies
Blockchain games have also given rise to specialized assets.
Some tokens serve as currency in a virtual world.
Others reward players.
Some allow users to vote on a game’s development.
NFTs may represent items, characters or land.
This category exploded during previous cycles thanks to the play-to-earn model.
The principle seemed attractive: play and receive crypto.
But a gaming economy cannot sustainably distribute more value than it attracts without a sufficiently strong source of revenue.
When rewards come mainly from the arrival of new players, growth can become fragile.
The sector is therefore gradually moving toward models in which blockchain is used more for ownership of items or certain economic infrastructure within the game, rather than simply promising players a salary.
Here again, the game and the token must be distinguished.
An excellent game does not automatically mean that its token will appreciate.
A token may face inflation, player selling and a lack of demand mechanisms despite an active community.
Tokenomics matter just as much as the product.
Some cryptocurrencies belong to several categories at once
This is why every rigid classification eventually fails.
ETH is a native infrastructure cryptocurrency.
But it is also used as a means of payment.
It is a staking asset.
It is used as collateral in DeFi.
Wrapped ETH is even a tokenized version of the same asset.
BNB is both a native blockchain currency and an asset linked to the Binance ecosystem.
Dogecoin is a meme coin, but also a coin with its own blockchain that can be used for payments.
UNI is a utility/governance token linked to a DeFi protocol.
A stablecoin can be used as a means of payment, collateral, trading asset and unit of account.
Categories therefore describe dominant functions, not watertight boxes.
This is an important idea for an investor.
Asking “what category does this token belong to?” is a good starting point.
The real question then becomes:
what are its different sources of demand?
A token with three real uses is not necessarily three times more valuable.
But it may depend on more economic mechanisms than an asset whose sole function is to be bought in the hope of selling it at a higher price.
Not all categories carry the same level of risk
The word “crypto” can create the impression that all assets share the same level of risk.
That is not the case.
A regulated and highly liquid stablecoin generally has a very different profile from a meme coin launched yesterday.
Bitcoin has more history, liquidity and infrastructure than a micro-token.
An RWA token may show little volatility while still carrying legal counterparty risk.
A privacy coin may be technically robust but face greater regulatory restrictions.
A governance token may depend on protocol activity and the concentration of its voting power.
BrefCrypto’s article on the main crypto narratives also shows how capital moves between sectors depending on the cycle.
This phenomenon produces a common mistake.
An investor sees that a category is “working” and buys any token carrying that label.
RWAs are rising?
They look for the smallest RWA token.
AI is becoming popular?
They buy any token with “AI” in its description.
The category may be relevant.
The project may be poor.
The narrative never replaces individual analysis.
How can you identify a cryptocurrency’s type?
A few questions are enough.
Does it have its own blockchain?
If so, it is probably a native coin.
Is its price designed to track the dollar or another asset?
It is probably a stablecoin or another form of synthetic asset.
Does the token allow holders to vote?
It has a governance function.
Is it used to pay for a service?
It has a utility dimension.
Does it represent an asset that exists elsewhere?
It may be an RWA, wrapped token or another representative token.
Does its main proposition rely on a community or cultural phenomenon?
It may belong to the meme coin category.
Is its technology primarily designed to conceal transaction information?
It probably falls into the privacy coin category.
BrefCrypto’s crypto glossary is useful when a project combines several of these concepts.
One final question may be the most important:
why does this token need to exist?
A project may have an excellent application.
That does not necessarily mean its token has a meaningful economic model.
Which type of cryptocurrency should you choose?
There is no universally superior category.
Everything depends on the objective.
Someone seeking exposure to a form of scarce digital money will probably study Bitcoin.
Someone seeking exposure to the activity of programmable infrastructure may look more closely at ETH, SOL or other blockchains.
A person who simply wants to temporarily hold value close to the dollar may turn to stablecoins, while assessing issuer risk.
DeFi will be more attractive to a user willing to accept smart-contract risk.
RWA tokens may be relevant to someone seeking to use blockchain while retaining economic exposure to traditional instruments.
Meme coins belong much more clearly to the realm of speculation.
And there is no obligation to own a cryptocurrency from every category.
This idea is worth repeating.
A portfolio is not better simply because it contains twelve asset groups.
Diversifying across Bitcoin, ten altcoins and four meme coins offers no guarantee of genuine protection when the entire market falls simultaneously.
Understanding each position remains more important than filling every category.
Cryptocurrency categories mainly tell the story of the sector’s evolution
In 2009, Bitcoin almost sufficed to define the entire industry.
A peer-to-peer digital currency.
Then Ethereum made blockchain programmable.
Tokens multiplied.
Stablecoins brought the dollar onto blockchain networks.
DeFi turned tokens into financial instruments.
NFTs introduced non-fungible assets.
Governance created voting rights.
Staking produced liquid representations of locked positions.
Tokenization is now beginning to bring Treasury bills, funds and other traditional assets onto the same infrastructure.
This is probably the best way to understand the different types of cryptocurrencies.
They correspond to different stages in the evolution of blockchain.
The first question was:
can digital money be created without a central bank?
Bitcoin answered it.
The next was:
can value be programmed?
Ethereum opened that door.
Then:
can the dollar circulate on these networks?
Stablecoins emerged.
Today, the question goes much further:
which assets and financial services can be rebuilt or represented on blockchain?
This progression explains why the term “cryptocurrency” is becoming almost too narrow to describe the sector.
USDT is not Bitcoin.
UNI is not ETH.
An NFT is not Monero.
A tokenized Treasury bill is not Dogecoin.
They may all use cryptography and blockchain.
Their economics, functions and risks remain radically different.
That is precisely why learning the categories should come before the usual question:
“which one is going to rise?”
