XRP is the cryptocurrency of the Ripple digital payment network. Built for digital payments, XRP touts itself as a faster and more efficient way to power global payments. Ripple and XRP also allow for third-party development on other uses for XRP.
4. Cardano
Cardano (ADA) uses a technology called Ouroboros, a peer-reviewed blockchain protocol. It describes itself as a more secure and scalable way to maintain decentralization.
5. Stellar
Stellar’s native cryptocurrency is the Lumen (XLM). Stellar is designed as an “open network for storing and moving money” that allows people to create, send, and trade digital money. It’s designed to sell and trade all digital monies, not just Stellar’s own associated cryptocurrency, the Lumen — although you’ll need to own some Lumen to make transactions.
6. USD Coin
USD Coin (USDC) describes itself as “the world’s digital dollar.” Created by a global financial firm called Circle, USDC is the result of work that has been invested in by Goldman Sachs, Baidu, and IDG Capital, among others. USD Coin is tied to the U.S. Dollar, which makes its price much more stable than other cryptocurrencies. That stability lends itself more toward digital payments, while other cryptocurrencies have more potential to increase in value as investments (along with more risk of losing value, of course).
7. Chainlink
Chainlink (LINK) uses “real-world data and off-chain computation while maintaining security and reliability,” according to its website.
8. Uniswap
Uniswap (UNI) is a decentralized crypto exchange that operates on Ethereum’s blockchain. Its developers promise to get rid of unnecessary intermediaries, which it says gives users more control.
9. Polkadot
Polkadot (DOT) says its mission includes allowing different blockchains to exchange information and transactions with one another. Its website plays up data and identity security and users being in control.
10. Bitcoin Cash
Bitcoin Cash is a peer-to-peer electronic cash system, which was the original intention of Bitcoin. The currency allows you to send money anywhere for very low fees.
While each of these top cryptocurrencies is unique in its own way, they all tie into an underlying principle called decentralized finance (DeFi).
Decentralized Finance
In its simplest terms, decentralized finance refers to financial activities conducted without the involvement of a traditional bank.
Think about all of the activities in which you’d normally use a bank or some other financial institution — getting a loan, insurance, investing, even using a credit card. “All of these [activities] are traditional-finance based and have intermediary companies,” says Ollie Leech, learn editor at CoinDesk. “Now people are creating these products in a completely autonomous way with [cryptocurrencies].”
It can seem counterintuitive — where else would you go for a loan, if not an established lender? But that’s one of the appeals to DeFi, says Leech.
In the same way people have increasingly brought “smart” technology into their homes, proponents say cryptocurrency has potential to automate and digitize more and more aspects of the financial system. The appeal of this happening outside the conventional — or centralized — finance system depends on who you ask.
Many Americans may not understand the appeal of a finance system that operates beyond government control. But things can be very different in countries with less financial stability, says Roger Aliaga-Díaz, principal and senior economist with Vanguard Investment Strategy Group. If cryptocurrencies offer as much or more stability as a given national currency, it’s an entirely different equation than if your national currency is the safe and stable U.S. dollar.
Just like there are different types of accounts and tools in conventional finance — from savings accounts to investment accounts to credit cards — that are used for different purposes, different cryptocurrencies can have similarly unique uses in this emerging decentralized finance system.
Instead of going to a bank to draw out a loan, you might “go to a decentralized application that’s not owned or operated by anyone in particular,” says Leech.
Where conventional loans involve humans at a bank who take part in processing, reviewing, and approving loans, a DeFi loan — with funding in the form of cryptocurrency — could run via app on a network like Ethereum with an algorithm processing it. The borrower would put up some cryptocurrency as collateral, which they’d get back minus interest when they repay the loan.
“The code runs autonomously using smart contracts,” Leech says. “So once the developers release the data they’re pretty much hands-off, and everything runs automatically so there’s no intermediary.”
Ethereum’s website offers a comparison chart contrasting decentralized from traditional finance. Along with these technical differences, a big consideration to keep in mind is that the conventional financial system is regulated to serve the interests of everyday customers, while cryptocurrency and decentralized financial systems are largely unregulated, and subject to governance and oversight only by their creators/users.
Unlike the money kept in a bank account, money you have in crypto may not be FDIC insured. Some exchanges offer this insurance while others don’t — something you’ll want to look into before buying crypto from one or another. For exchanges that don’t offer this insurance, there’s no guarantee you will be repaid if there is a hack or the exchange goes out of business.
| DECENTRALIZED FINANCE | TRADITIONAL FINANCE |
|---|---|
| You hold your money | Money held by financial institutions |
| Transfers happen in minutes | Payments can take days to process |
| Transactions are pseudonymous | Financial activity is coupled to your identity (social security number, name, address, etc.) |
| Market is always open | Market closes |
| Built on transparency – anyone can inspect the system | Financial institutions are closed books |
With that in mind, here are some of the broad categories of cryptocurrencies that tend to organize the market.
Digital Gold
Digital gold refers to cryptocurrency comparable to real gold in its ability to store and increase in value. There’s a limited amount of gold on earth, in the same way that digital gold cryptocurrencies have a limited supply.
“People buy gold not because they expect to be able to go to the store and spend it, but because they expect it to hold its value and maybe, probably, increase in value over time,” says Galen Moore, director of data and indexes at CoinDesk.
The primary example of a digital gold cryptocurrency is Bitcoin, though that was not its original intention. Bitcoin was originally put forth as an electronic peer-to-peer cash system, but its volatility, among other things, limited its potential for that purpose.
In use, such digital gold cryptocurrencies are bought and held, “for the same reason people would have diamonds, or some $100 bills, or some gold coins in a safe,” says Moore. Litecoin is another example — it’s been described as silver to Bitcoin’s gold.
Digital Cash or Internet Money
Internet money is exactly what it sounds like — you use it to buy things over the internet.
Bitcoin was originally intended to be digital cash, but speculation led to the creation of another cryptocurrency, Bitcoin Cash (a variation of Bitcoin). Bitcoin’s price was too volatile for it to be a suitable currency, which proponents for Bitcoin Cash argued was the entire point of the currency to begin with.
“There was a big debate about what the future of Bitcoin was going to be. Was it gold or was it cash? The people who wanted it to be more like gold won out,” says Moore. The decision was a “turning point for Bitcoin where it really went down to be digital gold.”
But the group that wanted Bitcoin to remain internet money split off — or forked, in crypto parlance — the currency and created Bitcoin Cash. The network is devoted to digital payments (with faster processing and lower fees). In these ways, Bitcoin Cash is “meant to be cash. That’s the value proposition,” says Moore.
Though Bitcoin Cash is designed and intended for transactions, its price is still volatile and probably not your best option for making or receiving payments.
Software Platforms
Ethereum represents another type of cryptocurrency: It operates as a cryptocurrency network and along with its native cryptocurrency, Ether, offers a programmable crypto environment for developers. Similar to how smartphones allow third-party apps to be downloaded and used, Ethereum allows developers to create “dapps” — Ethereum-based apps that tap into the network.
Investors can buy Ether just like they can buy Bitcoin, hoping it increases in value. Ethereum’s programmable network allows for other, more customizable uses. One example is the creation of NFTs — nonfungible tokens — that caught the attention of people far beyond the cryptocurrency community this year. NFTs are Ethereum-based digital assets, which hold value based on demand and supply on the Ethereum network
Stablecoin or Digital Fiat
A stablecoin pegs its value to some other currency or commodity. A digital fiat represents a fiat, or government-backed, currency on the blockchain, says Moore. One of the most popular examples of a digital fiat is Tether, a cryptocurrency whose value is pegged to the U.S. dollar.
Tether is a system that enables you to have a cash-like currency that is always worth $1 — but only on cryptocurrency exchanges. A digital fiat like Tether comes in handy when you want to quickly move your assets within a cryptocurrency exchange. For example, if you think the market for smaller, more unpredictable coins is going to crash, you might put your money in a stablecoin like Tether, and then buy back at a lower price after the crash, says Moore.
Stablecoins enable the exchange to flow better, says Moore. Taking the previous example, you could theoretically cash out your smaller coins for actual dollars, and then reinvest those dollars after the crash, but it could take days to convert your coins into dollars and back again, says Moore.
EXAMPLES
Tether, USD Coin
Memecoins, and Other Strange Cryptocurrencies
There are thousands of cryptocurrencies available. Many of them have little to no value, and no discernable value proposition, which lands them in the category of memecoins. Experts recommend avoiding investing in this category of coins and sticking with more well-known options like Bitcoin or Ethereum, if you decide to invest in crypto at all.
Whoppercoin and PutinCoin fall into this category of cryptocurrencies, as does another famous memecoin of recent fame: Dogecoin. While Dogecoin has seen a rise in demand — and thus value — in recent weeks, it still is highly volatile, as evidenced by its drop in value when Tesla CEO Elon Musk made it the subject of a joke on a recent episode of “Saturday Night Live.”
EXAMPLES
Dogecoin, PutinCoin, Whoppercoin
