The Crypto Ecosystem: A Guide to Different Types of Cryptocurrency

In 2009, the crypto market contained exactly one 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 crypto price ticker can look confusing. Many assets sit side by side, but they work in very different ways and carry very different levels of risk.

Not all crypto is trying to be money. Some assets are closer to software access keys, some look more like digital collectibles, and some are mainly speculative trading chips.

If you decide to get involved, it helps to know what you are looking at. This guide breaks down the main distinctions and common categories of cryptocurrency. It is an overview, not a complete list, and it does not tell you what to buy or sell.

The fundamental distinction: coins vs tokens

One of the most common technical splits in crypto is between coins and tokens. People often use the words as if they mean the same thing, but they are different concepts.

Coins (native assets)

A coin is the native currency of its own independent blockchain. It is built into that network from day one and is usually required for basic operations.

• How it works:
  Coins are typically used to pay transaction fees and to reward the miners or validators who secure the network. If the network grows in usage, demand for the coin may increase, but it can also fall sharply if demand drops or confidence is lost.

• Examples:
  Bitcoin (BTC) is the native asset of the Bitcoin blockchain.
  Ethereum (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 UK, you use pounds (£). If you are using the Bitcoin network, you pay fees in Bitcoin.

Some investors see coins like BTC or ETH as long‑term holdings. Others treat them as short‑term trading instruments. In both cases, large price swings are common and there is no guarantee of future value.

Tokens (guest assets)

Tokens do not have their own blockchain. They live on top of an existing blockchain and rely on its security and infrastructure.

• How it works:
  Creating a token is usually quicker and cheaper than launching a brand new blockchain. This lower barrier can encourage innovation, but it also makes it easier for low‑quality or fraudulent projects to appear.
  When you send a token, you normally pay transaction fees in the blockchain’s native coin, for example ETH on Ethereum.

• Examples:
  Uniswap (UNI) and Shiba Inu (SHIB) are both tokens that exist on the Ethereum blockchain.

Categorising crypto by use case

Beyond the coin versus token split, it is often more helpful to ask a simple question: what is this asset meant to do?

A clear use case does not make an asset safe, but it can help you understand the basic idea behind it.

1. Payment and store of value assets

These are the closest digital equivalents to money. Their main goal is to act as a way to transfer value, or to hold value over time.

• Bitcoin (BTC):
  Bitcoin was designed as a decentralised alternative to government‑issued money. Some people use it for payments, others treat it as a long‑term store of value.
  Other payment‑focused coins exist,and like bitcoin face issues such as price volatility, regulation, and real‑world acceptance.

2. Infrastructure (smart contract chains)

These are blockchains that support smart contracts, which are small pieces of code that run on the network. They act as platforms that other applications can be built on.

• Ethereum (ETH) and Solana (SOL):
  These networks support decentralised applications (often called dApps), such as lending platforms, exchanges, and games. Their native coins are used to pay for running these applications.
  The value of these coins is often linked to how much people use the network and how much they are willing to pay in fees. Network competition, technical failures, or regulatory changes can all affect usage and prices.

Infrastructure coins can benefit from network growth, but they also come with significant technical, market, and regulatory risk.

3. Stablecoins

Stablecoins are cryptoassets intended to keep a price consistent with a real-world asset or commodity. They are usually pegged 1:1 to a traditional currency, often the US dollar, although GBP‑linked stablecoins also exist.

• USDC or Tether (USDT):
  These tokens aim to let traders and users stay in crypto without being fully exposed to large price swings. One USDC is intended to be worth about 1 USD, although exchange rates and fees vary.
  They are fungible, so one unit of USDC should be functionally the same as any other.

Although stablecoins target price stability, they are not risk free. Key risks include:

• The quality and transparency of the reserves backing the coin.
• The legal and regulatory set‑up of the issuer.
• The possibility that a stablecoin loses its peg so that 1 unit is no longer worth what users expect.

Stablecoins aren't always "stable". Some have experienced several notable de-pegging events, like Terra's UST in May 2022. Tether (USDT), the largest stablecoin by market capitalisation, has faced multiple brief de-pegging incidents also.

4. Utility and governance tokens

These tokens are linked to specific applications or platforms. They may give access to services, discounts, or voting rights in protocol decisions.

• Utility tokens:
  These provide access to a product or service. For example, in the metaverse game The Sandbox, the token SAND is used to buy virtual land and items. It acts as the in‑game currency.
  If the game or platform falls out of favour, the token’s demand can drop quickly and its price can fall sharply.

• Governance tokens:
  These give holders the ability to vote on changes to a protocol. Uniswap (UNI) is a common example. UNI holders can vote on proposals that affect how the Uniswap exchange works.
  Governance rights do not usually give ownership of company assets or profits in the way that shares can, and usually offer no legal protection.

The value of these tokens often depends on how much people use the underlying application and how much they value the utility or voting rights, which can be highly uncertain.

5. Memecoins

Memecoins are cryptocurrencies inspired by internet jokes, memes, or pop culture. Their branding often spreads on social media very quickly.

• Dogecoin (DOGE) and Shiba Inu (SHIB):
  Many memecoins start with no clear long‑term use case. Their prices may be driven mostly by hype, celebrity mentions, or online communities rather than fundamentals. Some projects later try to add more features, but this does not remove the risk.

Memecoins are generally highly speculative. Prices can rise sharply in a short time, but they can also collapse just as fast. Liquidity can be thin, which may make it hard to sell at the price you expect.

6. Central Bank Digital Currencies (CBDCs)

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

CBDCs are different from public cryptocurrencies such as Bitcoin. They are centralised and sit within the traditional financial system.

Supporters argue that CBDCs could make payments faster and cheaper. Critics raise concerns about privacy and the level of control governments might have over transactions. CBDCs are typically not investment products and are still in testing or early adoption stages in most countries, including the UK.

Fungible vs non‑fungible tokens (NFTs)

You will often hear the term “fungible” when people discuss crypto.

• Fungible tokens:
  Bitcoin, ETH, and USDC are each fungible with themselves. If you trade one unit of BTC for another unit of BTC, you have the same type and amount of asset. It is similar to swapping one £10 note for another £10 note.

• Non‑fungible tokens (NFTs):
  NFTs are unique digital tokens that represent ownership of a specific item or record. This could be digital art, a collectible card, a music file, a ticket, or a piece of virtual land.
  Because they are unique, one NFT is not directly interchangeable with another. Trading one NFT for another is more like swapping a painting for a rare trading card. They may have very different attributes and values.

NFTs can be highly illiquid and speculative. Prices can be difficult to value, buyers may be hard to find, and intellectual property rights are not always clear.

Real‑life example: a crypto game journey

To see how different types of cryptoassets can interact, consider a user engaging with a “play‑to‑earn” style game such as Axie Infinity. 1. The infrastructure:
The user starts with Ethereum (ETH), the native coin used to pay transaction fees on the network that hosts parts of the game.

2. The exchange step:
   The user swaps some ETH for the game’s token. Each swap involves costs and exposes the user to price moves.

3. The utility and governance token:
   The user acquires AXS, the game’s token that can be used for in‑game actions and protocol governance. If the game loses popularity, AXS could fall significantly in value.

4. The NFT purchase:
   Inside the game, the user buys an “Axie”, a digital creature represented by an NFT. This NFT is unique and owned by the user’s wallet, but its value depends entirely on demand in that specific market.

5. The reward token:
   By winning battles, the user receives SLP (Smooth Love Potion), a fungible token that can sometimes be sold on exchanges. Reward tokens are often very volatile. Changes to the game’s rules or user activity can quickly affect supply, demand, and price.

At each step there are multiple risks, including price volatility, smart contract bugs, platform failure, hacks, and changes to game rules. Using several assets together increases complexity.

Risks and safety

Understanding what type of cryptoasset you are buying is only a starting point for risk management. It does not remove the possibility of loss.

Some key areas to consider:

• Utility vs speculation:
  Utility tokens usually rely on the success and ongoing use of a project. If users or developers leave, the token might lose most or all of its value.
  Memecoins and many other tokens mainly rely on market sentiment. Prices can move sharply on rumours or social media trends, and you may not be able to sell at the price quoted on screen.

• Scams and fake tokens:
  Because it is relatively easy to create a token, scammers often launch copies of popular tokens or entirely fake projects.
  Common tactics include look‑alike names, fake websites, and phishing links. Always check the official contract address from a reliable source before interacting with a token. Even then, there is still risk.

• Volatility:
  Many cryptoassets, including larger coins like Bitcoin and Ethereum, can move up or down by more than 10% in a single day. Sudden crashes are common.

• Technology and security risks:
  Smart contracts can contain bugs. Protocols and bridges can be hacked. Wallets can be compromised if you share your private keys or recovery phrases, or if you download malicious software.

• Regulatory and legal risk:
  Rules around cryptoassets are still developing in many countries, including the UK. Changes in regulation or tax treatment can affect how and where you can use or trade certain assets.

You should only invest money you can afford to lose, and you should be prepared for long periods of loss or for an asset to become worthless.

Summary

The crypto market has expanded far beyond Bitcoin. It now includes a wide range of coins and tokens that try to serve different purposes, from payment and infrastructure to gaming, art, and memes.

• Coins are native to their own blockchains and often act as the fuel that keeps those networks running.
• Tokens sit on top of existing blockchains and can represent everything from platform access to voting rights.
• Stablecoins aim to track traditional currencies, although they depend on issuers and reserves that can fail.
• NFTs represent unique digital items and are usually illiquid and speculative.

By grouping assets into these broad categories, you can build a clearer picture of what each cryptoasset is meant to do and where some of the main risks sit. This can support your own research, but it will not eliminate the chance of loss.

If you are unsure whether crypto investing is right for you, consider speaking to a qualified financial adviser who can look at your personal circumstances.