His palms are sweaty, knees weak, arms are heavy, there's vomit on his sweater already, mom's spaghetti

The famous Eminem quote may be applicable to beginners after discovering the vast amount of cryptocurrencies in existence. However, it is much easier after realizing that each of those cryptos can be classified into one of these five categories: 

• Payment Coins
• Utility Tokens
• Stablecoins
• Non-Fungible Tokens
• Security Tokens

After reading this article you will learn about these categories, what they are used for, and cryptocurrencies that fit in them.

* It is worth noting that these categories are not absolute; there are several subtypes of tokens and more categories will likely appear in the future as the space develops.

Coin vs. Token

First, let's define the difference between a coin and a token. These terms are often used interchangeably in discussion but (technically) have different meanings. 

A Coin: A cryptocurrency that is built on its very own, unique blockchain. Examples: NEM (XEM), Monero (XMR), and of course, Bitcoin (BTC).

A Token: A cryptocurrency that is built on a coin's blockchain (usually with smart contracts). Examples- Shiba Inu (SHIB, built on Ethereum), Celsius Network Token (CEL, built on Ethereum), and Quant(QNT, built on Ethereum).

Out of the top 100 cryptos (at the time of writing), 53 were coins and 47 were tokens. At first, I thought there would be far more tokens than coins because, after all, tokens are built on coins' blockchains. However, this is not the case for the top 100 because investors seem to favor new projects that can offer something unique on their own blockchains.

Now on to breaking down the five major categories of cryptocurrencies. 

Payment Coins

Payment coins are used for fast, cheap, irreversible transactions that are then, of course, recorded on the blockchain. These are essentially digital money systems that function without banks because:

1. Users are in control of and responsible for their own funds

2. Transactions are not controlled by a central authority, but rather approved (or denied) by nodes and are open for anyone to see

3. Transactions are pseudonymous (disconnected from your identity)

4. Transactions are irreversible (there is no central authority to reverse transactions)

5. Coins are not "minted" by a central authority like the government, they are rather "mined" by computers (called nodes) that validate transactions

Some payment coins even perform completely anonymous transactions (these coins would fit under a subtype known as Anonymous coins).

All payment coins have their very own blockchain as it is not as efficient to record payments on another blockchain. This was the initial motive behind the creation of cryptocurrencies. But, the space has evolved far from what it was once for, and there are coins and tokens for many more purposes. Technically, any coin/token can be used for payments, but payment coins are solely for the purpose of payments.

Examples:

1. eCash (XEC)

• "eCash is the implementation of the tech-secured sound money envisioned by luminaries in monetary philosophy like Milton Friedman" (e.cash)
• Fork of Bitcoin Cash (BCH). BCH is a fork of Bitcoin
• Formerly known as Bitcoin Cash ABC (BCHA)

2. Litecoin (LTC)

• "Litecoin is a proven medium of commerce complementary to Bitcoin" (litecoin.org)
• A spinoff of Bitcoin with a few changes

3. Bitcoin (BTC)

• "Bitcoin is open-source; its design is public, nobody owns or controls Bitcoin and everyone can take part" (bitcoin.org)
• The OG

The biggest payment coin is, of course, Bitcoin.

*Note, a lot of payment coins are the result of hard forks from the Bitcoin network (meaning their creators disagreed on certain details and decided to create a new coin by starting a new blockchain based on the old one). Sometimes there are even forks of forks.

Utility Tokens

Utility tokens are used to access and use the services of a certain network. They are similar to metro tickets. The metro would be the network and you have to buy the ticket to use it. This is applied seamlessly to the blockchain and an ABSOLUTE HECKTON of useful services have arisen through the use of utility tokens. These tokens usually rise in value when the service/network/project grows in popularity and more people use it. Projects usually raise funds through utility tokens with initial coin offerings (ICOs).

Examples:

1. BitTorrent (BTT)

• BTT "powers features of the most popular decentralized protocols and applications in the world" (bittorrent.com)
• Tron-based token used on BitTorrent's file sharing and torrent platform
• Can be used to purchase faster downloading speeds from uploaders
• Can also be earned by seeding

2. Dai (DAI)

• "Dai is a stable, decentralized currency that does not discriminate" (makerdao.com)
• Ethereum-based token used on MakerDAO as a governance token (a subtype of utility token)
• Holders have voting rights and decide the future of MakerDAO

3. Aave (AAVE)

• "Aave will introduce safety and ecosystem incentives to reward protocol growth" (aave.com)
• Ethereum-based token used on Aave DeFi protocol
• Holders get benefits such as lower fees and voting rights

The biggest utility token (technically coin) is Ethereum (ETH); it is used to pay transaction fees on the Ethereum blockchain. Regardless of which coin is being transferred, it is required to have ETH to pay for the gas fee. There are hundreds of utility tokens built on the Ethereum blockchain which is one of the reasons that ETH (and its gas fees) have gone ballistic this year. Other coins like Solana (SOL), Avalanche (AVAX), and Polygon (MATIC) have also exploded for the same reason; more and more dapps, tokens, and projects built on their networks.

One limitation of the metro ticket analogy is that utility tokens aren't always required to use a certain service. As seen above, AAVE is simply an incentive to promote growth. Also, DAI is one of those cryptos that fit in multiple categories. It is simultaneously a utility token and a stablecoin.

A lot of utility tokens are built on another coin's blockchain.

Utility tokens are the most common type of crypto now as investors are always looking for the coins that will offer them, well, utility as well as incentives.

Stablecoins

Stablecoins are cryptocurrencies that exist to stay 'pegged' at a 1:1 price ratio with another asset (mostly fiat). The vast majority of stablecoins are pegged to the US Dollar, meaning their price stays at $1.00

Stablecoins combine the benefits of cryptocurrency while eliminating volatility. This allows them to be used as a much more... stable store of value. Additionally, dollar-pegged stablecoins are not the only ones around; there are stablecoins pegged to Gold and other currencies like the Euro. Stablecoins are also used to facilitate trades on crypto exchanges (act as currency for buying and selling).

Well, how do stablecoins stay stable? There are two ways. Collateralization or an algorithm.

In collateralized stablecoins, the issuer manages a reserve and issues a number of tokens proportional to the quantity of a specific asset they hold in that reserve. So the stablecoin is backed by the reserve asset (which can be fiat, a commodity, or another cryptocurrency). Often, the very asset that the stablecoin is supposed to stay pegged to is the one in the reserves. This method is evidently quite centralized as the issuer controls the reserves and token supply.

In algorithmic stablecoins, an algorithm controls the token supply; minting or burning tokens as necessary to match demand. If demand surges, the algorithm increases the supply to counteract the momentum and vice versa. This method is far more decentralized.

Examples:

1. Liquity USD (LUSD)

• "LUSD, a fully backed stablecoin pegged to the US Dollar that's maintained by an algorithmic monetary policy." (liquity.org)
• 110% backed stablecoin for Liquity which is a DeFi platform
• Ethereum-based

2. Binance USD (BUSD)

• "Binance USD (BUSD) is a new USD-denominated stablecoin approved by the New York State Department of Financial Services (NYDFS) that will be launched in partnership with Paxos and Binance." (paxos.com)
• USD-backed stablecoin made by Binance in partnership with Paxos
• On Ethereum, Avalanche, and Binance blockchains

3. CryptoFranc (XCHF)

• "The XCHF token is issued by Bitcoin Suisse AG." (bitcoinsuisse.com)
• Stablecoin pegged to the Swiss Franc
• Ethereum based

Tether (USDT) is the largest stablecoin and the 4th largest cryptocurrency. Stablecoins serve a crucial function in the crypto space. Although they have been the cause for a myriad of controversy and legislative battles, their role is undeniably irreplaceable.

Non-Fungible Tokens

Non-Fungible Tokens, NFTs for short, are tokens on the blockchain that possess different qualities than all other types. They are unique and indivisible.

Each token is different from the next, in value and essence. You cannot neatly exchange one for the other.  Unlike with bitcoin, where when you buy a bitcoin, you don't care which of the 21 million you get, as long as you get one. But with NFTs, each token has its elements and its own value. 

They also cannot be divided. For example, would you rather receive a 10 dollar bill or two 5 dollar bills? Regardless, the outcome is the same. The dollar is divisible; there are quarters, dimes, nickels, and cents. There are even different units of bitcoin; decibits (10), centibits (100), millibits (1,000), microbits (1,000,000), and satoshis (100,000,000). Contrastingly, you can't have a fraction of an NFT.

These qualities distinguish NFTs from other tokens. Because of these very properties, NFTs have sparked a brand-new application for blockchains. People are minting their art on the blockchain as an NFT and selling it for thousands upon thousands of dollars. You've likely heard of the Bored Ape Yacht Club, the famous NFT collection which has sold some art in the millions! The hype and press (both positive and negative) that this has generated is unparalleled anywhere else (except maybe for metaverse). Other possibilities for NFTs are music, videos, text, digital land, game items and more.

Examples:

1. Alpha Centauri Kid

• "There is utility in my art. All of it. The utility is when I’m gone my daughters will be able to watch and listen and connect with me whenever they want to." (@lphaCentauriKid on Twitter)
• NFT collection consisting of horror-themed videos, photos, and music pieces
• OpenSea Profile

2. Bricktopians

• "Bricktopians are preposterous. To create the collection, we’ve spent months creating an AI that is capable of reinterpreting custom characters using over 50 different brick types, at a scale of 10,000 in full 3D, and moving into 4D as part of our roadmap." (bricktopians.com)
• AI generated collection of unique avatars known as Topians made of bricks
• OpenSea Profile

3. Art For N

• "8888 works of art generated uniquely with your @the_n_project_ token." (@art_4_N on Twitter)
• Collection of colorful abstract art shapes
• OpenSea Profile

There are several sites on which to explore and purchase NFTs such as opensea.io, rarible.com, superrare.com, and others. There are also sites for specific NFT collections like the Axie Marketplace for axies, NBA Top Shot for exclusive NBA highlights, and others.

Security Tokens

Last but not least, come security tokens. These tokens are similar to stocks, but on the blockchain. By holding a security token on the blockchain, you are awarded with fractional ownership of real-world assets. This can be applied to shares in a company, bonds, ETFs, futures, options, real estate, and more.

The opportunity in real estate is ground-breaking as it is now possible to own a fraction of a property digitally instead of purchasing the entire thing and having to upkeep it. There have also been blockchain companies that have attempted to sell their own shares in form of security tokens (essentially stocks on the blockchain).This has, however, been the cause of a legislative tussle with the SEC over whether these count as actual securities and therefore should be regulated (for example, XRP's case). 

Examples:

N/A; security tokens are still quite largely hypothetical and none that exist at the current moment are important enough to name

These 5 types of cryptocurrencies can be studied, bought, and explored on various websites and apps.

The top 100 at the time of writing consisted of:

• 12 payment coins
• 81 utility tokens
• 7 stablecoins

It's important to recognize the role that each cryptocurrency plays through its category. Each category is crucial to the crypto universe as a whole. Differentiating between and understanding each category is another huge step in your crypto journey.