Introduction
Cryptocurrencies have gained the status of being the latest technological innovation that the world is trying to adopt. However, there are still many people who imagine that cryptocurrencies define only Bitcoin. While Bitcoin is a bonafide cryptocurrency often regarded as the first ever blockchain network, it is important to understand that there are various types of digital currencies at the same time. The latest statistics from fool.com suggest that there are currently more than 12 thousand cryptocurrency variants around the world.
Why Is It Important to Find Top Cryptocurrencies?
The most important utility for cryptocurrencies at present is their use as an investment option. At present, the majority of the world does not have financial independence. Most people aim to work all their lives and earn good enough incomes to get by. Stock trading and investment are mostly limited to a very small niche of the world population.
However, with cryptocurrencies, a greater number of people will be able to create investment positions. When new investors want to get started with cryptocurrencies, they find out that there are thousands of cryptocurrency options to choose from. Therefore, it is important to learn about the top cryptocurrencies to create a solid and profitable cryptocurrency portfolio.
Classification of Cryptocurrencies
After a little studying and online research, a prospective digital currency investor can understand that there are various renditions of digital assets available in the world. At the same time, the researchers can find that some cryptocurrencies are described as tokens while others are called coins.
It happens because there is a clear distinction between different types of classification of digital currencies based on various factors. With a better understanding of the variable kinds of crypto assets, digital currency investors can take their crypto assessment skills to the next level. Here are some of the most important types of cryptocurrencies:
Coins and Tokens
Coins are the fundamental and core cryptocurrency issuance of a particular blockchain project. There are several blockchain projects like Ethereum that support several digital currencies and DeFi protocols. However, the central token issue of the Ethereum blockchain is ETH or Ethereum, which can be classified as a coin based on its primary association with its native blockchain.
Meanwhile, digital currencies, in addition to the primary coin that one blockchain issues or supports, can be put into the category of tokens. For example, on Ethereum, several other cryptocurrencies, such as Basic Attention Token (BAT) or 0x (ZRX), are hosted. Bitcoin is a blockchain that does not have any other token related to its main blockchain. However, since Bitcoin is considered the flagship blockchain, all other coins and tokens other than Bitcoin are regarded as altcoins or alternative coins.
Stablecoins are digital currencies that aim to maintain their price position fixed at a predetermined value at all times. For example, the price of a USDT stablecoin tries to remain equal to 1 USD at all times. The benefit of holding stablecoins is that the investors can prevent the loss of value of their savings on account of economic reasons such as money supply and fiat devaluation etc.
Stablecoins are typically pegged to the value of another asset such as fiat currencies, commodities, or other cryptocurrencies to maintain their value. Tether, USD, BUSD, and Dai are some good examples of stablecoins. There are four basic sub-classification of stablecoin, namely algorithmic, commodity-backed, crypto-backed, and fiat-backed, based on their pegged collateral reserves.
Utility Tokens
Utility tokens have the function of offering some type of discount or ownership stakes for their holders. However, utility tokens cannot grant full propriety for a certain service or cryptocurrency option. Utility tokens can provide the holder with benefits such as a greater decentralized storage facility, rewards, or currency collateral in a blockchain project. Brickblock, Sirin Labs Tokens, Golem, and Timicoin are some good examples of utility tokens.
Security Tokens
Security tokens represent the possession of a stake, stock, bond, or share issued by an organization or enterprise. Companies can opt to introduce security tokens using Security Token Offerings or STOs. Security tokens can grant voting rights, ownership, and dividend representation to their holders. Security tokens are the digital representation of stock issuance.
Investors can gain better transparency, rapid settlement, asset divisibility, and liquidation privileges with Security Tokens. Sub-divisions of Security tokens are asset-backed tokens and equity tokens, and examples are Science Blockchain, Blockchain Capital, Sia Funds, etc.
Non-fungible Tokens, or NFTs, are tokens that cannot be replaced with any other token. NFTs are used to determine digital ownership without the question of online piracy and duplication. NFTs are the most important component in Web 3.0 platforms, and artists and creators use NFTs to ensure that they can keep getting paid for their content contribution. Some of the most popular NFT collections in the world are Crypto Punks, Azuki, PolygonPunks, Prime Ape Planet, etc.
Privacy Tokens
Privacy tokens are used to protect the transaction history and digital footprint of a cryptocurrency holder. Even the best-decentralized cryptocurrencies in the world are partially traceable. Therefore, digital currency investors who wish to keep their online transactions anonymous can opt for investing in privacy tokens. With the use of Privacy Tokens, the investors can hide their digital currency activities from law enforcement agencies, private investigators, journalists, and hackers using blockchain encryption. The top privacy tokens in the world are Monero, Dash, Verge, Horizon, Zcash, etc.
Exchange Tokens
Exchange tokens are all cryptocurrencies that are issued by a particular cryptocurrency exchange market, such as Coinbase, Binance, Huobi, Kraken, etc. Exchange coins are used by investors to switch from one type of digital asset to another. It is important to note that Exchange tokens can remain functional outside of any cryptocurrency exchange. They can be found listed on centralized or DeFi exchanges. BNB token, Gemini USD, OKB, CRO, and FTX Coin are some good examples of Exchange Tokens.
Payment Tokens
Payment tokens are digital currencies that are listed by independent companies or online merchants as an acceptable medium of exchange for buying or selling their goods and services. It means that rather than using cash or fiat currencies for settling a bill, Payment tokens are used as an intermediary instead.
A payment token is only useful for making sales or purchases as long as all the stakeholders involved in the transaction agree on their status as a medium of exchange. Bitcoin, Ethereum, and Monero tokens are some good examples of Payment Tokens.
DeFi Tokens
Decentralized tokens are issued by a DeFi protocol or application to back their economic functionality. DeFi platforms allow any user around the world to access their tokens using the internet. Decentralized tokens also use smart contracts and DAOs to program the tokens to perform predetermined conditions and standards.
Some good examples of DeFi tokens are ADA, Tron, Polygon, UniSwap, Solana, etc. DeFi tokens are also used for lending, borrowing, liquidity, yields, trading on decentralized exchanges, and diversifying cryptocurrency portfolios.
Asset-backed Tokens
Asset-backed tokens are the digital representation of stakes in a physical commodity in the real world, such as gold, real estate, copper, bond, stocks, sugar, oil, corn, natural gas, etc. Companies can choose to issue their asset-backed tokens in Equity Token Offerings or ETO events. The price of the asset-backed tokens depends directly on the price changes in the commodities or asset class they are backing. Some good examples of asset-backed tokens are Ziyen Inc. Oil Token, Energy Web token, Wheat Token Coin, OilCoin, etc.
How to Identify a Top Cryptocurrency?
It is easy to take out a list of top cryptocurrencies online with a simple online search. However, it is important to note that since cryptocurrencies are subject to high volatility, a top digital currency at one point can get to the bottom in less than 24 hours. Therefore, it is not enough to draw out a list created at one point in time to learn about the best cryptocurrencies. The investors who are planning to create long-term and manage their cryptocurrency portfolio with higher efficiency must learn to filter out the top cryptocurrencies in real-time by themselves. Here are some of the best criteria a person can use to make this call:
Demand and Supply
Demand and supply dynamics are the most rudimentary macroeconomic factors that can make or break a crypto currency’s value. If there are too many coins available in the market at once, the price is going to falter rapidly, and demand will decline.
Therefore, it is important to check what type of supply management protocols have been etched into the blockchain by its developers. For example, Bitcoin uses the halving method, which means that every four years, the number of Bitcoin mining rewards is cut by 50% to secure its total circulatory supply and maintain demand.
Price and Volume
The price and volume of a cryptocurrency play an important role in determining the stability of a given cryptocurrency. The assessment of the current price is not enough. Professional investors use price histograms to watch for the fluctuations of a digital currency which also allows them to determine what factors impact the price point.
On the other hand, overall transaction volume and related history can allow the investors to understand the amount of invested interest and demand for the crypto project.
Cost of Production
Cryptocurrencies can use PoW or PoS consensus model that allows them to depend on mining using heavyset computing farms. When the cost of production is high, the price of a cryptocurrency is likely going to increase likewise. When there is more competition for decrypting a digital currency block, miners will put greater effort into qualifying for higher minting rewards.
On the other hand, PoS currencies can depend on a variable suite of factors to determine the cost of production. The cost of investment is also necessary for the investors to think about factoring in the transaction fees from point A to the real cash deposits for their cryptocurrency products.
Practical Use Cases
Various types of cryptocurrencies depend purely on market speculation. It means that these digital currencies are not offering any real use case at their base and use market speculation and hype to gain more price momentum in the market. Such digital currencies can fall and crash at any moment and are often termed as shit coins. It is best to stay away from shit coins as investors can use them to defraud investors using the pump and dump method.
Exchange Listings
The number of exchange listings a cryptocurrency has at present and in the past is a visible indicator of its demand and popularity among investors. A cryptocurrency exchange is unlikely to list any digital currency that does not entice more investor revenue for them. Furthermore, more listings also warrant a better liquidity quotient. A listing on the most popular and exclusive cryptocurrency exchange can also play an important role in increasing traction for a digital currency and increasing its price point.
Governance Model
The governance model is another important factor that can hugely impact the price and value of a cryptocurrency. If the governance model of a cryptocurrency is flawed and filled with lags and issues, it can put the investor’s safety at higher risk.
The investors need to learn about the technical aspects and performance history of a blockchain project using metrics like scalability, interoperability, immutability, decentralization, minting model, yield percentage, voting rights, upgrades, and other important governance models to place them in a secure investment position.
Regulations and Legal Dynamics
Regulatory guidance and legal dynamics can change the course of a cryptocurrency project at any given time. Despite being fully decentralized, even Bitcoin is not impervious to changes in state-sanctioned policies and civilian laws. The government of China banned Bitcoin mining and trading last September. Although some underground mining farms in China are still generating hashrates, the general public is unable to trade, hold, mine, or use any type of illegalized cryptocurrency due to the law of the land.
Technical and Financial Audit
Technical and Financial Audits are really important for ascertaining the stability and reliability of a given blockchain project. A prospective investor must read the White Paper related to a blockchain to understand if it makes sense.
Investors can also read technical reviews and financial analysis breakdowns posted online by various independent market experts to make better decisions. The investors should also seek information regarding the developers who have issued the blockchain or token, considering factors like their educational background, their programming skills, their past projects, their legal track record, their investment career, etc.
Competitive Projects
With the use of competitive projects raising against a blockchain or a cryptocurrency, the investors can measure its demand in the market. Furthermore, the competitive projects can also allow the investors to learn about the hidden lags and advantages of a given cryptocurrency project in greater detail.
Social Media Response
Social media are a window into the emotional and psychological perception of a cryptocurrency among investors. By joining social media platforms, the investors can learn to ask the right questions and understand how much value the crypto community grants to a particular cryptocurrency.
Top 10 Cryptocurrency Projects in 2022
Using the following description, the investors can grasp the dynamics and important statistics about the top 10 cryptocurrencies in 2022:
Bitcoin
Bitcoin is often used as a stand-in for the underlying concept of cryptocurrencies and blockchain. It has managed to remain the highest-grossing cryptocurrency since its inception in 2009 by a pseudonymous creator Satoshi Nakamoto. Bitcoin has a limited supply of 21 million coins and exerts a market dominance of more than 45% at all times. Its main use case is offering P2P and regulatory free exchange value transfer.
Ethereum
Ethereum is a streamlined blockchain hosting environment that has been around since 2015. The total supply of Ethereum is infinite, and it also depends on the PoW model like Bitcoin. Ethereum was forked into two blockchains on account of a hack attack after its public debut. Ethereum is well-known for its massive use case, and the core developers of Ethereum are planning to shift the blockchain to the PoS model.
BNB
BNB is an exchange token issued by one of the largest cryptocurrency exchanges in the world called Binance. It is also the main token issuance of Binance Smart Chain or BSC. Binance token is the third largest cryptocurrency by market cap in the world after Bitcoin and Ethereum.
XRP is associated with Ripple Labs, and it has been rebranded with a blockchain project called XRP Ledger. It is a PoS peer-to-peer exchange coin and has gathered a considerable amount of traction on account of its clash with the Securities and Exchange Commission of the USA.
ADA is native to the Cardano blockchain and the fifth largest cryptocurrency by market cap and trading volume. Cardano is known for its continuous upgrading main frame and integration of new features every year. Cardano plans to rival the Ethereum blockchain.
SOL
SOL is the main cryptocurrency issuance by the Solana Network, which is another rival project to the Ethereum network. Solana network can host several other projects, and it tries to attract more investors by offering smaller transaction fees in comparison to the Ethereum network.
DOGE coin is a meme currency that was created by William Markus, who borrowed the open-sourced code core from Bitcoin. Dogecoin is the main project that started the meme currency mania in the cryptocurrency market. Dogecoin developers are collaborating on new projects with companies like SpaceX.
DOT
DOT is a native cryptocurrency of Polkadot protocol that has created a parachain project for blockchain. Polkadot is trying to create a bridge between different blockchains to allow investors to migrate cryptocurrencies and messages from one blockchain to another without using any third-party applications. The DOT token works as a governance token for Polkadot users.
Polygon blockchain’s main crypto issue is the MATIC token. Polygon is a layer-two blockchain network that is built on the Ethereum network. The main aim of Polygon is to improve the scalability issues for Ethereum. MATIC currency is a governance token and allows investors to pay for their transaction fees.
SHIB
SHIB is the second most popular meme currency after the DOGE coin, and it is related to the Shiba Inu project. SHIB investors have managed to convince a considerable amount of cryptocurrency exchanges to list the token and several businesses to start accepting the Shib token as payment.
Conclusion
There are several variants and types of cryptocurrencies present in the world today. It has been 12 years since the blockchain technology was first introduced, and it has come a long way since its inception. Investors can benefit from the cryptocurrency market if they can understand the underlying dynamics and learn to categorize and scrutinize digital currencies efficiently.
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