Foundational Knowledge
Episode 3: Types of Cryptocurrencies
In the first two episodes, we introduced cryptocurrency and explained how it works via blockchain. In this episode, we will look at the different types of cryptocurrencies and the purposes they serve. Understanding the main categories can help you decide which type might suit your needs best.
Payment Cryptocurrencies
These are designed mainly for sending and receiving money quickly and securely. Bitcoin is the most famous, and it was created to allow people anywhere in the world to transfer value quickly and without banks. Other examples are Litecoin and Bitcoin Cash. Think of them as digital alternatives to cash or bank transfers, although their prices can move up and down sharply. Payment cryptocurrencies act like digital dollars but without borders or middlemen.
Utility Tokens
These tokens don’t just function as money. Instead, they provide access to services or products within a particular blockchain network. For example, the Ethereum blockchain’s native token, Ether, is themost famous utility token. It is the “fuel” that is used to run a wide range of applications on the Ethereum network, such as smart contracts and decentralised finance (DeFi). Without the token, the system cannot work. In simple terms, utility tokens are like buying airtime to use a mobile phone network.
Stablecoins
Stablecoins are cryptocurrencies designed to hold a steady value by being “pegged” to a real-world asset like the US dollar or gold. This makes them less volatile compared to Bitcoin and other cryptocurrencies. Because their value is stable, stablecoins are ideal for everyday transactions, saving, or sending remittances without worrying about price swings. Examples include USDT (Tether) and USDC. In situations where physical currency loses value, people often turn to stablecoins to protect their savings or trade more easily. They allow digital access to that value without carrying physical notes.
Central Bank Digital Currencies (CBDCs)
CBDCs are digital versions of a country’s official money, issued by its central bank. China has the digital yuan, Nigeria has the eNaira, and many other countries are piloting their versions. These are not decentralised like Bitcoin; they are official currency but in digital form. CBDCs aim to make payments faster and more efficient while maintaining government oversight.
Meme Coins
These started off as jokes or internet memes, like Dogecoin and Shiba Inu. Despite lacking serious use cases, they sometimes grow popular due to social media attention. For example, the American president Donald Trump and other celebrities like Kanye West have started their own coins. Meme coins tend to be highly volatile and risky but show how diverse the crypto world is.
Each type of cryptocurrency has a purpose, from payments to savings and investment or access to new services. Grouping them this way makes it easier to see how they might fit your financial goals; whether you need digital cash, stability, or even digital gold, there’s a crypto category for you. As we move forward in this series, we will explore how people buy, store, and use these currencies safely.
