The Crypto Ecosystem: A Guide to Different Types of Cryptocurrency

Back in 2009, the cryptocurrency market consisted of a single asset: Bitcoin. Today, there are tens of thousands of different digital assets traded on exchanges around the world. For someone new to the space, a price ticker can look more like a jumble of acronyms than a list of currencies.

Although we group them all under the label "crypto", these assets can behave very differently. Some aim to work as digital money. Others provide access to software or voting rights. Some are created mainly for entertainment.

If you want to navigate this market in a responsible way, you need to understand what you are looking at. This guide explains the main types and categories of cryptocurrency in clear terms.

The Fundamental Distinction: Coins vs. Tokens

A key technical distinction in crypto is the difference between a coin and a token. People often use the two words as if they meant the same thing, but they do not.

Coins (Native Assets)

A coin is the native currency of its own independent blockchain. It helps keep that specific network operating.

• How it works: Coins are typically used to pay transaction fees and to reward the miners or validators who help secure the network.
• Examples: Bitcoin (BTC) is the native asset of the Bitcoin blockchain. Ether (ETH) is the native asset of the Ethereum blockchain.
• Analogy: Think of a coin as the currency of a particular country. If you are in the euro area, everyday payments are usually made in euro. If you transact on the Bitcoin network, payments are made in bitcoin.

Tokens (Guest Assets)

Tokens do not have their own blockchain. Instead, they are issued on top of an existing blockchain, such as Ethereum, and use that network’s security and infrastructure.

• How it works: Creating a token is normally simpler than creating a new coin, because the developer does not need to build a new blockchain. When you send a token, you usually pay the transaction fee in the native coin of that network (for example ETH on Ethereum).
• Examples: Uniswap (UNI) and Shiba Inu (SHIB) are both tokens that operate on the Ethereum blockchain.
• Analogy: Picture the blockchain as an app store. The native coin is similar to the operating system. Tokens are like individual apps that run on top of that system.

Categorising Crypto by Use Case

Beyond the coin versus token split, it is useful to look at how different assets are intended to be used in practice.

1. Payment and Store of Value

These aim to function either as digital money, as a long‑term store of value, or both.

• Bitcoin (BTC): Frequently described as "digital gold". It is the original cryptocurrency and was designed as a decentralised alternative to government‑issued money. Its use today ranges from investment and speculation to cross‑border transfers.

Note: The effectiveness of any cryptoasset as a store of value or payment method depends on adoption, regulation, and price volatility. None of these outcomes are guaranteed.

2. Infrastructure (Smart Contract Chains)

These are blockchains that allow developers to build applications on top of them. They act as general‑purpose platforms.

• Ethereum (ETH) and Solana (SOL): These networks support "smart contracts", which are pieces of code that execute automatically when certain conditions are met. Smart contracts can power decentralised applications (often called dApps), such as trading platforms, games, or lending markets.
• In broad terms, demand for a native coin can be linked to how many people use the network and its applications, although prices are also heavily influenced by speculation.

3. Stablecoins

Stablecoins are cryptoassets that try to keep their price relatively stable. Most aim to track the value of a real‑world asset, often a fiat currency such as the US dollar or the euro.

• Examples: USD Coin (USDC) is designed to follow the value of 1 USD. Euro‑denominated stablecoins, such as EURC, are designed to track 1 EUR.
• Traders often use stablecoins to move in and out of more volatile assets without fully leaving the crypto environment.
• Stablecoins are usually fungible, which means that one unit is intended to be worth the same as any other unit of the same stablecoin.

It is important to understand that peg stability depends on how the stablecoin is designed, managed and backed. If the reserves or the mechanism fail, a stablecoin can lose its peg.

4. Utility and Governance Tokens

These tokens are linked to a particular application or protocol and give holders certain rights or functions.

• Utility tokens: Provide access to a service or feature. For example, in the virtual world game The Sandbox, the SAND token is used to buy virtual land and items. In this context, it acts as an in‑game currency.
• Governance tokens: Provide voting rights over certain decisions. Holders of the Uniswap (UNI) token can vote on proposed changes to the Uniswap protocol, similar to how shareholders can vote on some company matters.

The value of these tokens usually depends on how much people actually use or value the underlying application, as well as on wider market sentiment. There is no guarantee that any particular project will succeed.

5. Memecoins

Memecoins are cryptoassets that draw their identity from internet memes, jokes or popular culture.

• Dogecoin (DOGE) and Shiba Inu (SHIB): These often start with limited or no clear utility and are mainly driven by community interest and online attention. Some later develop extra features or ecosystems, but many remain highly speculative.
• Prices can rise and fall very quickly. Memecoins are generally considered high‑risk and are not suitable for all investors.

6. Central Bank Digital Currencies (CBDCs)

A Central Bank Digital Currency is a digital form of a country’s official money, issued and controlled by the central bank.

CBDCs are different from cryptocurrencies like Bitcoin. They are centralised, and the issuer is a public authority, not a distributed network of participants.

Potential benefits include faster payments and reduced costs. However, there are ongoing debates about privacy, data protection and the level of transaction visibility a CBDC could give to public authorities. CBDCs are still being researched and tested in many jurisdictions, including in the EU with the digital euro project, and are not yet widely available to the general public.

Fungible vs Non‑Fungible Tokens (NFTs)

You will often see the terms "fungible" and "non‑fungible" when reading about crypto.

• Fungible tokens: Assets such as BTC, ETH or USDC are fungible. If you swap one bitcoin for another bitcoin, you end up with the same type and amount of asset. The individual units are interchangeable, similar to one €10 note being equivalent to another €10 note.
• Non‑Fungible Tokens (NFTs): NFTs are unique digital tokens that can represent ownership or rights to a specific item, such as a piece of digital art, a collectible, or a particular plot of virtual land. They are not interchangeable on a one‑to‑one basis. Swapping one NFT for another is more like swapping a painting for a comic book. Each item can have very different characteristics and value.

While NFTs provide a way to show digital ownership, legal rights can differ by jurisdiction and by contract. Buying an NFT does not always mean that you own the underlying copyright or intellectual property.

Real‑Life Example: A Crypto Game Journey

To show how these different types can interact, consider a user taking part in a "Play‑to‑Earn" style game such as Axie Infinity.

1. Infrastructure: The user holds Ether (ETH), which is the native coin needed to pay transaction fees on Ethereum.
2. Exchange: The user swaps some ETH for a stablecoin like USDC in order to keep part of their balance closer to a fixed value in USD, or swaps ETH directly for the game’s own token.
3. Utility / Governance: The user buys AXS, which is the game’s governance and utility token, to participate in the game and possibly in its decision‑making process.
4. NFTs: Within the game, the user buys an "Axie", which is a unique digital creature represented by an NFT in their wallet.
5. Rewards: By playing and winning battles, the user earns SLP (Smooth Love Potion), a fungible reward token. This token can be traded back into other cryptoassets on compatible exchanges.

The exact mechanics are different for every game or platform, and many projects regularly update how their tokens work.

Risks and Safety

Understanding what kind of cryptoasset you are buying is only the first step. You should also consider the main risks.

• Utility vs speculation: Utility tokens often rely on the long‑term success and actual usage of a project. If the project fails or demand drops, the token can lose much or all of its value. Memecoins are heavily driven by social sentiment and may change in price very quickly, in both directions.
• Scams and fake tokens: Because creating a new token can be simple, scammers can launch fake or copycat tokens that imitate the name or branding of well‑known projects. If you are using a self‑custody wallet, always verify the official contract address of a token via trusted sources before buying or transferring it.
• Volatility: Most cryptoassets can experience large and sudden price movements, including those linked to major infrastructure networks such as Ethereum. Stablecoins aim to reduce price volatility, but they carry their own risks, such as reserve quality, governance and technical problems. A stablecoin can fail or de‑peg.
• Regulation and legal risk: Rules differ between countries and are evolving. In the EU, the Markets in Crypto‑Assets (MiCA) framework sets out requirements for certain cryptoasset issuers and service providers. Not every asset or provider will fall under MiCA immediately, and some may be based outside the EU, which can affect the level of protection available to you.

Never invest more than you can afford to lose, and take time to understand both the asset and the service provider you use.

Summary

Crypto is no longer just about Bitcoin. It has grown into a broad set of digital assets that serve different purposes.

• Coins are native to their own blockchains and keep those networks running.
• Tokens sit on top of existing blockchains and power applications, services or communities.
• Stablecoins attempt to track the value of traditional currencies like the euro or US dollar, although they can still fail.
• NFTs provide a way to represent unique digital items and ownership records.

By grouping assets into these categories and looking closely at what each one actually does, you can form a clearer picture of the opportunities and the risks. This does not remove uncertainty, but it can help you make more informed and measured decisions about which parts of the crypto ecosystem, if any, are suitable for you.