If you’re new to cryptocurrency, you may be wondering how intelligent individuals make sense of such a complex ecosystem. How do you differentiate cryptocurrencies when there are so many?
Most traders and investors, to be honest, have their own classification system.
There are, however, more popular choices. For example, the most generally used method organizes crypto-assets according to how they are intended to be utilized. This is not an ideal system. In fact, whether there are different types of cryptocurrencies at all is still a point of contention.
It’s possible, for example, that all cryptocurrencies are simply fighting to be digital money, in which case there may only be one type.
That being said, the goal of this post is to classify the Kraken cryptocurrencies so you can have a better understanding of how they work and why they could be useful when developing and diversifying your crypto portfolio.
Messari, a prominent data and information aggregator for the crypto asset market, used its approach to generate the types of cryptocurrency categories below.
Cryptocurrencies for Payment
Payment cryptocurrencies are digital currencies that are managed by a distributed network of computers that use the same blockchain software. Some are attempting to compete with fiat money, while others are focusing on payments for a particular use case or industry.
Aside from the functionalities required to define, transfer, record, and protect transactions on the network, cryptocurrency networks aimed at disrupting payments usually lack several functionalities.
Bitcoin, the first cryptocurrency, is said to be an excellent example of a payment cryptocurrency because it was created as a substitute for existing fiat currencies.
The bulk of alternative payment cryptocurrencies aim to outperform Bitcoin in a variety of areas, including scalability and speed.
Cryptocurrencies that are backed by assets are sometimes known as payment cryptocurrencies.
These crypto-assets are typically pegged to more traditional assets, providing the efficiency and transparency benefits of cryptocurrency while also providing price exposure to more established forms of value.
Finance Cryptocurrency
Users may be able to manage or exchange other crypto assets with the help of financial cryptocurrencies.
A financial cryptocurrency, for example, may assist a user in trading on a decentralized exchange or making decisions about how it should be operated. Another financial cryptocurrency could be used to crowdfund money, bringing together early-stage crypto projects and investors.
More complex financial cryptocurrencies may even attempt to mimic financial services such as market making or lending and borrowing. Furthermore, prediction markets cryptocurrencies allow you to bet on the outcome of specific events.
Infrastructure Cryptocurrency
Infrastructure cryptocurrencies are typically used to compensate computers that run programs on a shared blockchain software network.
For example, the crypto asset that powers Ethereum is known as ether, and it is classified as an infrastructure cryptocurrency because users must purchase it in order to create and use decentralized applications running on the network.
There are numerous blockchain platforms that offer various use cases, and each one requires its own infrastructure cryptocurrency.
Infrastructure cryptocurrencies can also be defined as tokens focused on interoperability.
Their goal is to provide a method for connecting multiple blockchains and allowing users to transact across these networks.
Service Cryptocurrency
Service cryptocurrencies may provide tools for managing personal or business data on the blockchain. Their commonality is that they both assist blockchain-based financial products in accessing and validating external data sources.
Many service cryptocurrencies work to give users digital identities and connect people’s records from the real world to the blockchain.
There are numerous applications for combining blockchain technology with real-world applications. These can range from cryptocurrencies that provide various healthcare industry services (e.g., Dentacoin) to cryptocurrencies that provide file storage services (e.g., Storj, Siacoin).
Cryptocurrency in Media and Entertainment
Media and entertainment cryptocurrencies, as the name implies, seek to reward users for content, games, gambling, or social media.
A media and entertainment cryptocurrency, such as Basic Attention Token, aims to better distribute value to creators and consumers in an equitable manner.
Finally, cryptocurrencies in the media and entertainment industries are used to power digital worlds accessed through virtual and augmented reality technologies.
