Classification of Cryptocurrencies

There are various ways to classify cryptocurrencies. Below are common classification dimensions and their representative coins:

I. Classification by Technical Architecture and Function

1. Layer 1 Coins

• Definition: Serve as the underlying blockchain platforms, supporting smart contracts, DApp development, and asset issuance.

• Characteristics: Focus on balancing decentralization, security, and scalability.

• Representative Coins:

  • Bitcoin (BTC): The first decentralized cryptocurrency, positioned as "digital gold," primarily using the PoW consensus mechanism.

  • Ethereum (ETH): The world’s largest smart contract platform, supporting DeFi, NFTs, and other applications, upgraded to PoS consensus after the Merge.

  • Cardano (ADA): A research-driven public chain emphasizing sustainability and compliance.

  • Tron (TRX): Highlights high throughput and low fees, with an ecosystem focused on DeFi and entertainment applications.

2. Platform Tokens

• Definition: Issued on public chains for paying transaction fees, ecosystem governance, or incentivizing users.

• Characteristics: Rely on the development of the main chain ecosystem, with functions deeply integrated with the public chain.

• Representative Coins:

  • Binance Coin (BNB): The native token of the Binance exchange, used for fee deduction, participating in IEO (Initial Exchange Offering), etc.

  • Huobi Token (HT): The ecosystem token of the Huobi exchange, supporting voting, staking, and other functions.

  • OKB: The platform token of the OKX exchange, used for rights redemption and governance within the ecosystem.

3. Application Tokens

• Definition: Functional tokens designed for specific blockchain applications (e.g., DeFi, NFTs, social networks).

• Characteristics: Address vertical domain needs and must integrate with specific use cases.

• Representative Coins:

  • Uniswap (UNI): The governance token of the Uniswap decentralized exchange, used for voting on protocol upgrades.

  • Axie Infinity (AXS): The governance and reward token of the Axie Infinity NFT game, earned by players through gameplay.

  • Chainlink (LINK): The token of the decentralized oracle network, used to pay for off-chain data for smart contracts.

4. Privacy Coins

• Definition: Protect transaction privacy and user identities through cryptographic technologies (e.g., zero-knowledge proofs, ring signatures).

• Characteristics: Conceal transaction amounts and sender/receiver information.

• Representative Coins:

  • Monero (XMR): Uses ring signatures and stealth addresses to emphasize full anonymity.

  • Zcash (ZEC): Supports optional anonymous transactions, achieving privacy protection through ZK-SNARKs technology.

  • Dash: Adopts a hybrid anonymity model, offering "instant send" and "private transaction" features.

II. Classification by Economic Attributes and Use Cases

1. Store of Value

• Definition: Positioned as "digital gold," emphasizing inflation resistance and long-term value preservation.

• Characteristics: Fixed or slow-growing supply, strong market consensus.

• Representative Coins:

  • Bitcoin (BTC): With a total supply of 21 million, widely regarded as "digital gold."

  • Gold-Backed Tokens (e.g., PAX Gold, PAXG): Stablecoins pegged to physical gold, with 1 token equivalent to 1 ounce of gold.

2. Utility Tokens

• Definition: Used for purchasing goods, services, or accessing specific functions (non-investment purpose).

• Characteristics: Depend on specific application scenarios, with value determined by ecosystem demand.

• Representative Coins:

  • Filecoin (FIL): The token of the decentralized storage network Filecoin, used to pay for storage and retrieval fees.

  • EOS (EOS): The token of the EOS public chain, used for staking to obtain network resources (e.g., CPU, bandwidth).

3. Governance Tokens

• Definition: Grant holders voting rights on protocol upgrades, fund allocation, and other decisions.

• Characteristics: Influence ecosystem development direction through decentralized autonomy (DAO).

• Representative Coins:

  • Uniswap (UNI): Governs upgrades and parameter adjustments for the Uniswap protocol.

  • MakerDAO (MKR): Manages the monetary policy and risk parameters of the Maker protocol’s stablecoin DAI.

4. Stablecoins

• Definition: Pegged to fiat currencies or other assets (e.g., gold), with relatively stable prices (typically 1:1 peg to USD).

• Characteristics: Used as a medium of value in cryptocurrency trading to reduce market volatility risks.

• Categories and Representative Coins:

  • Fiat-Collateralized: USDT (Tether), USDC (issued by Circle), BUSD (Binance USD).

  • Crypto-Collateralized: DAI (pegged to USD, generated by collateralizing assets like ETH).

  • Algorithmic Stablecoins: UST (collapsed), FRAX (partially algorithmic + partially collateralized).

III. Classification by Issuance and Consensus Mechanism

1. PoW Coins

• Definition: Achieve consensus through Proof of Work (computing power competition), requiring significant energy consumption.

• Representative Coins:

  • Bitcoin (BTC), Litecoin (LTC), Dogecoin (DOGE, originally PoW, now partially shifted to PoS).

2. PoS Coins

• Definition: Compete for bookkeeping rights through Proof of Stake (holding quantity + time), with lower energy consumption.

• Representative Coins:

  • Ethereum (ETH, shifted to PoS after the Merge), Cardano (ADA), Polkadot (DOT).

3. Other Consensus Mechanisms

• DPoS (Delegated Proof of Stake): EOS (21 super nodes elected by voting for bookkeeping).

• DAG (Directed Acyclic Graph): IOTA (used for IoT micro-transactions, no miners, transactions serve as consensus).

IV. Special Types of Cryptocurrencies

1. NFTs (Non-Fungible Tokens)

• Definition: Unique and non-interchangeable digital assets used to authenticate ownership of artworks, domain names, game items, etc.

• Characteristics: Each NFT has a unique identifier and is issued on public chains (e.g., Ethereum, Solana).

• Representative Projects:

  • Bored Ape Yacht Club (BAYC), CryptoPunks, Azuki.

2. MEME Coins

• Definition: Speculative tokens spread rapidly based on internet trends or community culture, with no practical use cases.

• Characteristics: Extremely volatile prices, relying on community hype and viral marketing.

• Representative Coins:

  • Dogecoin (DOGE, originated from a meme), Shiba Inu (SHIB, a "meme coin" mimicking DOGE).

3. Cross-Chain Assets

• Definition: Assets that circulate between different public blockchains through cross-chain protocols (e.g., ERC-20 version of BTC, wBTC).

• Representative Coins:

  • wBTC (BTC-anchored token on Ethereum), renBTC (BTC cross-chained via the Ren Protocol).

Risk Warnings

The cryptocurrency market is highly volatile, and some coins carry regulatory risks, technical vulnerabilities, or the risk of project teams running away with funds (e.g., "rug pull"). Before investing, thoroughly research project whitepapers, team backgrounds, and market trends to avoid blind following. It is recommended to trade through compliant exchanges and properly secure private keys/seed phrases.