There are lots of different types of cryptocurrencies available. I’ve noticed that a lot of people refer to all cryptocurrency as ‘Bitcoin’, and I think that’s because it was the first, is still the biggest in terms of market price and value, and probably has had the most press over the years.
They are not all ‘Bitcoin’, only one is Bitcoin. At the time of writing Bitcoin’s price is in the $80k range, down from a high near $110k a few months ago. Compared to all the other cryptocurrencies (with the exception of Stablecoins – see below), Bitcoin’s price is relatively stable and a slow mover, and has potential for more of a long-term slow gain (or loss) rather than short-term.
Any cryptocurrency that is not the one and only Bitcoin seems to be known as an ‘Alt’-coin (‘Alt’ = Alternate). There are several different categories of cryptocurrency, all of which are Alt-coins. Some common categories are Meme-coins, Stable-coins, Privacy-coins.
One other confusing part of this is that some are called ‘coins’ and some are called ‘tokens’. From what I’ve learned so far, cryptocurrency associated with the main blockchains like Bitcoin and Ethereum are referred to as coins. Crypto associated with Level 2 networks, built on top of Ethereum (at least), are referred to as ‘tokens’. I don’t think it really matters whether we refer to them as coins or tokens, they’re all ultimately just records in a public blockchain and could just as easily be called shares.
Stable-coins are ‘stable’ because they are underwritten with real dollars. This means that their value is tied to the value of the real dollar (most often USD), and so are typically always worth about $1.00. One that I have found to be useful is USDC. I could buy USDC with fiat money (eg. CAD or USD) and then trade USDC for virtually any other cryptocurrency. Using USDC has allowed me to better understand the cost of buying and selling and, perhaps more importantly, has given me a place to store my ‘money’ between investment ventures. For example, if I found something attractive to buy I can swap USDC for it and I can tell from my wallet balance (in USD) just how much the crypto cost me, including the fees and spread. When I’m finished with that particular crypto, I can trade it for any other crypto, or back into USDC which remains stable and thus provides a ‘safe’ place to park the money until the next venture.
Meme-coins are created as whims, sometimes relating to celebrities, or for fun, but typically not for any serious venture. Some common ones that have had a lot of interest are DOGE and SHIB, and it seems that lots of money has been gained and lost through speculating in meme-coins. My experience with Meme-coins is that when a Meme-coin is listed it’s value quickly goes up and some people get in and out quickly and make a profit, but often the originator of the Meme-coin takes all their money out at one point and takes all the liquidity away, making it worthless (eg. a rugpull trick). I’ve dabbled in Memecoins, both successfully and unsuccessfully, but have for now decided that this is nothing but gambling and the odds are significantly against me.
There are a whole group of coins/tokens associated with business ventures linked to the cryptocurrency ecosystem (i.e. all the components that make cryptocurrency and trading possible). These cryptocurrencies are associated with various businesses that are focused on certain aspects of blockchains, networks, protocols, artificial intelligence, smart contracts and so forth. To me, these cryptocurrencies are very much like stock market shares and there is typically a website and roadmap about how the company plans to proceed, which provides an opportunity for some fundamental investment analysis. Some of the more common cryptocurrencies that fall into this general category are SOL, POL, AVAX, ADA, XRP. To me, these are more like stock market investments and less like the gambling involved in Memecoins.
I think a really important point is that crypto tokens aren’t just used as currency. They are also used for governance purposes and representing voting rights, or to represent something tangible like real world assets, and, really, for any imaginable purpose. I’ve become fascinated with the concept of a DAO – Decentralized Autonomous Organization – organizations and processes that are or could be almost entirely operated by software (smart contracts) embedded in a blockchain. Such DAOs could be governed by those holding governance tokens, and could involve both private transactions using crypto tokens and public transactions using cryptocurrency-type tokens. To me, the potential for crypto and DAOs to become common and very useful for day-to-day business and operations is huge. There are already many real-world examples.
There are many categories of crypto coins and I’ve really only mentioned a few here. Another is Privacy coins which are attempts to keep transactions private and anonymous. And another is NFT (i.e. Non-Fungible Tokens) which represent digital collectible items like art or music. Like all the other cryptocurrency, these are freely tradeable in the crypto market. If you’re interested in learning more about categories, look at https://www.coingecko.com/en/categories.
This was an attempt to share what I’ve learned, and it’s not advice, so do your own research.
Thanks, Jim.