Cryptocurrency Types Explained: Your Comprehensive Guide to Bitcoin, Altcoins, Coins, Tokens & NFTs

Diving into the Digital World: Your Friendly Guide to Cryptocurrencies

So, you've probably heard a lot about digital money lately, right? Since Bitcoin first popped up back in 2009, this whole world of cryptocurrencies has really taken off. But here's a crucial point: not all digital money is a cryptocurrency. Take Central Bank Digital Currencies (CBDCs), for example. While they're definitely digital versions of money, they're basically just like the cash in your pocket but in digital form, issued by governments. The big difference? They don't typically use that fancy blockchain technology that gives cryptocurrencies so many of their unique benefits.

The Big Two: Bitcoin Versus "Everything Else"

When you look at the entire cryptocurrency family, you can really split them into two big groups: there's Bitcoin, and then there are all the altcoins. Now, you might think, "Bitcoin and everything else? That sounds a bit too simple!" But it really highlights just how dominant Bitcoin is. Its sheer market size makes up a massive chunk of the entire crypto world. So, when people say "altcoin", they're literally talking about an "alternative coin" – basically, any cryptocurrency that isn't Bitcoin. And trust me, as of mid-2022, there are thousands of these altcoins out there, each trying to do something a little different or serve a specific niche.

Clearing Up the Confusion: Coins vs. Tokens

Now, let's clear up a common confusion: people often use "coin" and "token" as if they're the same thing, but there's a key difference. Sure, both live on blockchains, you can trade them, and send them around using crypto wallets. But here's the core distinction:

• Coins are like the original currency of a blockchain. Think of Bitcoin being native to the Bitcoin network, or Ether being the coin of the Ethereum network, or BNB for the BNB chain. They are fundamental to their own blockchain.
• Tokens, on the other hand, are like applications or assets built on top of existing blockchains. A great example is how many tokens are created using the popular ERC20 standard on the Ethereum network – Ethereum's native coin is Ether, but countless tokens operate on that same network.

What makes tokens so cool is their incredible flexibility. They can be practically anything – from a digital receipt showing you own a piece of a company to even loyalty points! Because they're so versatile, we can sort them into different types based on what they actually do:

• Transactional tokens are pretty straightforward: they're used for buying and selling stuff, just like regular money.
• Governance tokens give you a say in how a specific crypto project or system is run, letting you vote on important decisions.
• Utility tokens are like special passes that you use for payments within a particular app or service in the crypto world.

And the innovation doesn't stop there! The crypto industry is always coming up with new ideas, so we're seeing new types of tokens emerge all the time, like security tokens, equity tokens, and liquidity provider tokens.

The One-of-a-Kind: Non-Fungible Tokens (NFTs)

Now, for something truly unique in the token world: Non-Fungible Tokens, or NFTs. You've probably heard a lot about them! The key word here is 'non-fungible'. Think about it this way: a regular pound coin is interchangeable with any other pound coin – they're all the same. Bitcoin and Ether are like that too; they're "fungible". But NFTs? They're totally different. Each NFT has its own special identification code and unique data that makes it one-of-a-kind and impossible to swap for another. This uniqueness is what sets them apart from other coins and tokens that are primarily used for everyday buying and selling.

Ready to Dive In? Your Starting Point

So, if you're looking to dive into this incredibly exciting (and sometimes a bit overwhelming) crypto market, where do you begin? A smart first step is to get to know the biggest cryptocurrencies by their market value. Once you're comfortable with those, you can start gently exploring some of the less common altcoins. And once you feel good about understanding these different digital assets, the next big thing is to wrap your head around centralised and decentralised crypto exchanges. These are the places, essentially the marketplaces, where you'll actually buy and sell your cryptocurrencies.

Conclusion

In summary, the burgeoning world of cryptocurrencies, which began with the advent of Bitcoin in 2009, is notably diverse and distinct from other digital currencies like Central Bank Digital Currencies (CBDCs) that lack the benefits of a distributed ledger. Cryptocurrencies are broadly categorised into two main groups: Bitcoin and altcoins, a term encompassing all other thousands of cryptocurrencies that serve a myriad of purposes.

A fundamental distinction within this landscape is between coins and tokens. Coins are the native digital assets of a blockchain, such as Ether on the Ethereum network, while tokens are built on top of existing blockchains, offering enhanced flexibility. Tokens can serve various functions, including acting as transactional units for goods and services, governance tokens for voting rights within a protocol, or utility tokens for payments within specific ecosystems. The innovation within the crypto industry continually introduces new types of tokens, such as security tokens, equity tokens, and liquidity provider tokens.

A unique and significant category among tokens is Non-Fungible Tokens (NFTs). Unlike fungible coins and tokens (such as Bitcoin or Ether), which are interchangeable and identical, NFTs possess unique identification codes and metadata that make each one distinct and non-interchangeable. For those looking to navigate this complex yet dynamic market, a practical starting point involves familiarizing oneself with the largest cryptocurrencies by market capitalization before exploring less mainstream altcoins. Subsequently, understanding centralized and decentralized crypto exchanges becomes crucial for buying and selling these digital assets.