As the crypto field evolves, new use cases emerge daily. Some coins are intended to serve as the key to an NFT project. In some circumstances, possessing a utility token grants the holder access to the functionalities offered by a Decentralized Autonomous Organization (DAO).
Some cryptocurrencies serve as the key to a decentralized finance ecosystem, while others may be designed to be the key to unlocking the benefits of a metaverse.
Older cryptocurrencies, such as Bitcoin, are intended to be used as a method of transaction and a store of value.
This article classifies cryptocurrencies based on their use cases.
Types of cryptocurrencies
There are different types of cryptocurrencies and many of them fall into the groups that will be discussed below. It is important to note that the crypto space is always evolving and other use cases may exist that have not been included in this list. Transactional Tokens
Bitcoin is the world’s first cryptocurrency and the predecessor of all other cryptocurrencies. This cryptocurrency has long been used to initiate transactions and transfer wealth. Others regard it as an independent store of value. Because of the way Bitcoin is valued, various crypto-oriented firms and investment organizations are denominating their assets in Bitcoin. Its scarcity, which is related to the total number of Bitcoin that can ever be mined, has also contributed to its value.
Bitcoin was created prior to the advent of decentralized finance (DeFi), non-fungible tokens (NFTs), and other blockchain technology applications.
Decentralized Autonomous Organization (DAO) Tokens
Decentralized Autonomous Organizations (DAOs) are organizations that are governed by community members who typically own the platform’s native tokens. A DAO is typically created with an overarching goal in mind. It could be intended to function as an investment group, with people pooling their resources to invest in the DeFi and NFT ecosystems.
They may take the form of gaming guilds, where like-minded individuals band together to reap the benefits of the play-to-earn (P2E) ecosystem. A gaming guild has a diversified membership. The first is the gamer or scholar who plays various P2E games and shares the profits with the DAO. Another participant is the investor who offers their in-game assets, NFTs, and crypto holdings to the DAO.
The third category of participants in a DAO is the regular members that vote on proposed changes to the ecosystem and submit proposals.
This may come in the form of a DeFi Ecosystem. In this case, the DAO oversees a DeFi protocol that may be used for yield farming, decentralized exchanges, decentralized insurance, and much more.
Every DAO has its game plan and goals for the members of its community.
Metaverse Token
This is another type of cryptocurrency. Metaverse tokens grant holders access to all the features in a virtual world. In recent times, the concept of the metaverse has grown tremendously.
Some brands are purchasing virtual land in the metaverse to build their structures. Owners of some of these lands are renting or leasing them to the highest bidders.
In some virtual environments, users can interact with others and have access to a clubhouse, a coffee shop, events, and other features. Some music stars have organized events in the metaverse, connecting with their fans from all over the globe.
A metaverse may also take the form of a gaming environment. For instance, users can buy virtual lands, improve them, breed resources, and battle their competitors for the resources. They are allowed to plunder the lands of their competitors for the fun of it.
A metaverse may also come in the form of a workstation, where employees work together in a virtual environment while collaborating on different tasks. Some metaverse platforms offer their users tools to create their custom sub-environments.
The metaverse token acts as the key to accessing the features that a virtual environment offers.
DeFi Tokens
Decentralized finance (DeFi) is an aspect of finance that focuses on providing users with financial services such as loans, exchanges, trading, farming, and much more without the use of an intermediary.
DeFi has evolved into an essential element of the crypto ecosystem, with several DeFi protocols having their native tokens.
The bearer of the utility token has access to many functionalities in the ecosystem.
Some DeFi protocols have yield farming functionality that allows users to invest their idle tokens in a liquidity pool governed by a smart contract to generate returns.
The percentage of rewards differs across pools.
In some DeFi ecosystems, users can lend their idle tokens to borrowers without the need for an intermediary. The lender is rewarded with a percentage of returns for their service.
A Decentralized Exchange is a DeFi protocol that allows crypto enthusiasts to swap their tokens with others without the use of a middleman. An example of a decentralized exchange is UniSwap, and its native token is UNI.
With some DeFi tokens, holders can access an ecosystem that allows them to create stablecoins such as Terra.
Oracles are essential to the operations of blockchain-based platforms. Their smart contracts have to be fed with accurate data in real-time. An example of a decentralized oracle platform is Algoracle.
NFT Tokens
NFT tokens are a type of cryptocurrency that grants the holder access to the NFT ecosystem‘s functionalities. Non-Fungible Tokens are unique tokens that cannot be exchanged for another. They differ from fungible cryptocurrencies.
Some NFT systems function as a marketplace, allowing users to mint and sell NFTs.
Collectors can find gems in NFT Marketplaces.
NFT projects typically showcase their assets on NFT marketplaces.
Examples of popular NFT marketplaces are OpenSea and Rarible (which has RARI tokens).
This category also includes the Play-to-Earn (P2E) gaming ecosystem. This type of game provides monetary prizes to individuals who participate in various activities in the ecosystem, which can take the form of tokens or NFTs. These NFTs are typically in-game assets such as land, avatars, clothing, weapons, and properties, among other things.
They can generally be traded in the marketplace. Axie Infinity is a popular NFT play-to-earn game platform. Artists can create song NFTs in some NFT ecosystems and sell them to their ardent fans.
Popular NFT Marketplaces such as OpenSea enable artists to monetize their songs, albums, and collectibles with NFTs.
ATTA and other entertainment ecosystems allow their users to make videos and other types of content, then monetize them without the presence of a third party that takes a large portion of their profits or returns.
Meme or Joke Coin
Meme or joke coins are primarily intended for amusement and have no specific purpose. This type of token is intended to parody or make fun of the crypto space and its features.
Dogecoin (DOGE) is one such example, and it is regarded as the “founding father” of meme coins. It was created as a parody of Bitcoin and had no practical applications.
Another example is the Dogelon Mars, or ELON token, which began as a joke to facilitate InterPlanetary Money Transactions.
Shiba Inu (SHIB) is another meme coin that began as a joke but appears to be evolving in recent times. This ecosystem has progressed from a meme coin to a use case. Shiba Inu, for example, just developed a metaverse and is selling virtual lands denominated in Ether.
Some meme coins progress from a state of no use case to one of utility. It is vital to know that most joke coins lose value and may become involved in a pump and dump scheme. A meme coin may end up in a rug pull.
In Conclusion,
- There are different types of cryptocurrencies with varying use cases.
- Metaverse tokens provide holders with access to the different features that the virtual environment has.
- DeFi tokens are cryptocurrencies that are linked to decentralized finance platforms, such as decentralized exchanges, decentralized insurance, and lending facilities, among others.
- Cryptocurrencies can take the form of an NFT token, in which cryptocurrencies are used to mint NFTs, sell them, and do other things. The token is essential in the gaming environment when it is a Play-to-Earn ecosystem.
N.B: The mention of platforms and ecosystems in this list does not imply endorsement. As always, exercise caution before utilizing any of them or purchasing their tokens. The information provided in this article is solely for educational purposes and should not be misconstrued as financial advice on which type of cryptocurrency to add to your portfolio.
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