The Crypto Ecosystem: A Guide to Different Types of Cryptocurrency

Back in 2009, the cryptocurrency market consisted of exactly one asset: Bitcoin.

Today, there are tens of thousands of digital assets trading on exchanges around the world. If you are new to crypto, a price list can look more like a jumble of random letters than something you might invest in.

All of these assets sit under the broad label of “crypto”, but they do not all behave in the same way. Some aim to be digital money, others feel more like software shares or loyalty points, and a few exist almost purely for fun.

If you want to move through the market with confidence, you need to know what you are actually looking at. This guide breaks down the main types of cryptocurrency and what sets them apart.

The Fundamental Distinction: Coins vs Tokens

The key technical split in crypto is between a coin and a token.

People often use the words as if they mean the same thing, but in practice they do not.

Coins (Native Assets)

A coin is the native currency of its own independent blockchain. It is the core asset that keeps that specific network running.

• How it works: Coins pay transaction fees and reward the miners or validators who keep the network secure.
• Examples: Bitcoin (BTC) is the native coin of the Bitcoin blockchain. Ethereum (ETH) is the native coin of the Ethereum blockchain.
• Analogy: Think of a coin as the official currency of a country. If you are in Australia, you use AUD. If you are using the Bitcoin network, you use Bitcoin to transact.

Tokens (Guest Assets)

Tokens do not have their own blockchain. They live on top of an existing blockchain, most commonly Ethereum, and use that network’s security and infrastructure.

• How it works: Creating a token is far easier than creating a new blockchain. Developers can deploy a token using standard templates. When you send a token, you usually pay transaction fees in the network’s native coin, such as ETH on Ethereum.

Uniswap (UNI) and Shiba Inu (SHIB) are both tokens that operate on the Ethereum blockchain.

Categorising Crypto by Use Case

Once you understand the coin versus token split, the next step is to look at what a cryptocurrency actually does. Its use case is usually the best clue to its potential role in your portfolio.

1. Payment and Store of Value

These assets try to act like digital money or digital gold. Their main goal is to be used for payments or to hold value over time.

• Bitcoin (BTC): Often described as “digital gold”. Bitcoin is the original cryptocurrency and was designed as a decentralised alternative to government-issued money.

Some other coins also target payments, but Bitcoin remains the best known example.

2. Infrastructure (Smart Contract Chains)

Infrastructure coins sit at the base of entire ecosystems. These are blockchains that allow developers to build and run applications on top of them.

• Ethereum (ETH) and Solana (SOL): These networks support smart contracts, which are bits of self-executing code that power decentralised applications (dApps).
• The value of these coins often moves with how much real activity takes place on their networks, such as trading, lending, gaming or NFTs.

3. Stablecoins

Stablecoins are cryptocurrencies designed to keep their price as steady as possible. Most try to track a real-world asset, usually 1 to 1 with the US dollar.

• USDC and Tether (USDT): These are examples of US dollar stablecoins. They let traders and investors keep funds on the blockchain without being fully exposed to the price swings of assets like Bitcoin or Ethereum.
• Stablecoins are fungible. One USDC is meant to be worth the same as any other USDC, in the same way that one $10 note is the same as another $10 note.

From an Australian perspective, many people use USD stablecoins as a way to hold US dollar value within the crypto ecosystem, alongside regular AUD held in a bank account or exchange account.

4. Utility and Governance Tokens

Utility and governance tokens sit at the application layer. They usually relate to a specific dApp or protocol.

• Utility tokens: These give access to a product or service. In the metaverse game The Sandbox, for example, the token SAND is used to buy virtual land and items, and to interact with the game. It is the in-game currency.
• Governance tokens: These give voting rights over how a protocol operates. Holders of the Uniswap (UNI) token can vote on changes to the Uniswap protocol, similar to how shareholders can vote on company decisions.

Some tokens combine both roles. They might be used inside the app and also let holders vote on upgrades.

5. Memecoins

Memecoins are cryptocurrencies inspired by internet memes, jokes or pop culture. They lean heavily on humour and community.

• Dogecoin (DOGE) and Shiba Inu (SHIB): These started with very little formal utility. Their value has come mostly from community enthusiasm, social media and speculation.
• Over time, some memecoins develop side projects or extra features, but they are generally considered highly speculative and very volatile.

For many people, memecoins sit in the “high risk, small allocation” part of a portfolio, if they are included at all.

6. Central Bank Digital Currencies (CBDCs)

A Central Bank Digital Currency (CBDC) is a digital version of a country’s national currency. It is issued and controlled by a central bank.

Unlike Bitcoin or Ethereum, CBDCs are centralised. The issuing authority can see and potentially control transactions.

CBDCs may offer faster payments and cheaper transfers. However, they also raise privacy and civil liberties questions, since they could allow governments to track and record financial activity at a very detailed level.

Australia is actively researching CBDCs through pilot programs, although there is no retail Australian CBDC in public use at the time of writing.

Fungible vs Non-Fungible Tokens (NFTs)

When people talk about different types of crypto, you will often hear the word “fungible”. This simply means “interchangeable”.

• Fungible tokens: Bitcoin, ETH and USDC are all fungible. If you swap one Bitcoin for another Bitcoin, you hold the same thing with the same value. The same is true for most regular currencies.
• Non-fungible tokens (NFTs): NFTs are unique digital assets. Each token represents something specific, such as a piece of digital art, a collectible card or a parcel of virtual land. They are not interchangeable. Swapping one NFT for another is more like trading a guitar for a painting, rather than trading one $50 note for another.

Some NFTs also give access to communities, events or in-game items. Others are collected purely for their art or rarity.

Real-life Example: A Play-to-Earn Game

To see how these different types of assets can interact, consider someone using a “play-to-earn” game such as Axie Infinity.

1. The infrastructure: The player starts with Ethereum (ETH). This is the native coin used to pay transaction fees on the network that the game runs on.
2. The exchange step: The player swaps some ETH for a stablecoin such as USDC to lock in a set dollar value, or they might swap ETH directly for the game’s token.
3. The utility token: The player buys AXS, the game’s governance and utility token, which is needed to participate in the Axie ecosystem.
4. The NFT: Inside the game, the player buys an “Axie”, which is a digital creature represented by an NFT. That NFT is a unique asset that the player owns and can later sell or trade.
5. The reward token: By winning battles, the player earns SLP (Smooth Love Potion), which is a fungible reward token. SLP can then be traded on exchanges for other cryptocurrencies or, indirectly, for fiat currency such as AUD.

This single example involves an infrastructure coin, a stablecoin, a utility and governance token, and NFTs, all working together.

Risks and Safety

Knowing what type of crypto you are buying is a key part of managing your risk.

• Utility vs speculation: Utility tokens usually depend on the success and usage of the underlying project. If the app fails, the token may lose most of its value. Memecoins often rely almost entirely on social sentiment, so prices can rise quickly but can also fall just as fast.
• Scams and fake tokens: Because tokens are relatively easy to create, scammers regularly launch imitations of popular assets. Always double-check the token’s contract address on a trusted source, such as the project’s official website, to make sure you are buying the genuine asset.
• Volatility: Even large coins like Bitcoin and Ethereum can experience sharp price swings. Stablecoins aim to avoid this price volatility, but they come with their own risks, particularly around how well they are backed and whether the issuer is trustworthy.

In Australia, you should also keep in mind tax obligations. The Australian Taxation Office generally treats most crypto as an asset, not as foreign currency, which can mean capital gains tax may apply when you sell, swap or spend crypto.

Summary

Crypto is no longer just about Bitcoin. It has grown into a broad digital economy with many moving parts.

Coins such as BTC and ETH provide the core blockchains. Tokens build the applications and services that run on top. Stablecoins offer relative price stability for traders and investors. NFTs bring digital ownership and collectibles into the mix.

By grouping assets into clear categories, you can better understand what role each one might play and decide which parts of the ecosystem suit your goals and risk profile.