They are represented as tokens or ledger entries on a blockchain network, effectively used to meter the network’s capacity for transactions.
Confusingly, the names of cryptocurrency networks are used interchangeably with the tokens that technically speaking are the currencies. Three leading examples of cryptocurrencies are:
The demand for any specific cryptocurrency increases the more its corresponding blockchain network is used. Greater demand for the token might well increase its price.
However, digital currencies also include stable coins, which are less volatile as they are linked to the value of an existing currency or commodity. For example, Tether is an independent stable coin which attempts a US dollar peg. Indeed, many countries’ central banks are looking into launching stable coins. Purchasing stable coins can be considered as a way to invest in cryptocurrencies oriented at minimizing the associated volatility.
While the cryptocurrency universe is evolving quickly, VanEck has identified the following broad classifications:
Designed to hold or increase purchasing power over time. For example, Bitcoin.
Blockchain protocol designed to host a variety of self-developed and third party dApps. For example, Ethereum, Solana, TRON, Polkadot.
A decentralized computer program designed to perform specific tasks. For example, Polygon.
Digital currencies that attempt to peg to a reasonably stable asset such as a currency or commodity. For example, Tether.
Tokens owned and operated by a centralized cryptocurrency exchange. For example, FTT (FTX Exchange).
Digital monies operated by a distributed network. For example, Dogecoin.
Financial services built on top of distributed networks with no central intermediaries. For example, Uniswap.
A currency used to reward users for content, games, gambling or social media. For example, Axie Infinity.
People who don’t understand the need for cryptocurrencies usually just don’t see the use-cases. What can cryptocurrencies do besides transacting value and data on a global scale?