Crypto Categories 101, a mental map.

Main categories in crypto based on use case.

Jan 20, 2022

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Crypto is a space that can be overwhelming and confusing with everything that’s happening, let alone the speed, so it’s always helpful to have a mental map. This is why I wrote an article about how I categorize different types of crypto about a year ago.

However, after the impressive growth and development this sector experienced during 2021, where crypto is certainly not just about Bitcoin anymore, I figured it’s about time to refresh and update the list.

In this context, one of the main misconceptions that people have is trying to bucket all different types of crypto as a whole into one category, which can be quite misleading.

Instead, think of crypto like an ecosystem of its own, similar to a duplication of the existing economy as we know it:
what this means, is that just like we have different industries (financial, supply chain, entertainment, gaming, etc), so does crypto,
what this also means, is that just like we have our systems (monetary, legal, organizational), so does crypto.
lastly, just like we have properties and ownership (deeds, patents, art, etc), so does crypto.

Once you understand this, then it will be way easier to grasp the crypto space, which will then help you make better decisions in navigating the market.

How are these categories defined?

They are defined based on their use case, or in other words, what they do.

Each category then is further divided into subcategories or subsectors, if applicable.

Now, disclaimer time: there is no one universally accepted categorization of cryptocurrencies. This is how I personally visualize it. It also doesn’t cover every single sector within crypto. Rather, I focus on the main ones.

So let’s have a look!

Main Categories in crypto

1. Store of Value

Bitcoin is normally treated as a unique class, different from the rest of the cryptocurrencies, and I agree. Therefore, we are starting this list with it as the standalone category.

Even though Bitcoin was first created as a peer-to-peer digital cash alternative, it has evolved over the years and is currently considered a store of value. It gained the name of “digital gold”, and is treated as a separate asset class.

Click here for a beginner’s explainer of Bitcoin

This is mainly due to key attributes that Bitcoin possesses: scarcity (only 21M will ever be created), censorship resistant (decentralized network, permitionless), verifiable (blockchain technology), among others…

Click here for a comprehensive explanation of why Bitcoin is considered a great store of value.

2. Digital Cash

These are cryptocurrencies that were created to represent digital money.

The easiest way of understanding it is to think about it as any currency (USD, SGD, EUR, etc), but instead of holding it as banknotes in your wallet, it’s digital, built in the protocols on a blockchain.

The goal is to function exactly like FIAT currencies, but without all the problems and restrictions that come with it. The idea is to enable peer-to-peer electronic cash system, with fast payments and micro fees.

Great examples here is Litecoin (LTC), Bitcoin Cash (BCH).

There is a particular subcategory that is important to mention here…

STABLECOINS

This class of Digital Cash has been created with the purpose of tackling the price volatility typically associated with cryptocurrencies. In order to offer a certain stability, stablecoins are pegged to a collateral reserve asset, such as US Dollars (or other fiat currencies), gold, or other precious metals, etc.

This way, this type of cryptocurrency aims to offer the best of both worlds: the speed and agility of a digital currency, as well as the price stability of a fiat currency.

Main examples of Stablecoins are USDT, DAI, USDC, UST, etc.

Click here for an 101 on Stablecoins

3. Blockchain Platforms

Or Smart Contract Platforms… these are the blockchain networks that provide the platforms for developers to build their projects and applications on.

Think of them like huge office buildings. They provide the space, infrastructure, security, basic services, etc, for different companies to set up their offices to operate. Similarly, these Blockchain Platforms also host thousands of applications built on their network, providing the infrastructure that supports the growth and scaling of the crypto space.

In terms of subcategories, we can highlight:

Layer 1: this is the blockchain platform as we know it, the root, main underlying blockchain architecture platform, like Ethereum, Solana, Cardano.
Polkadot technically is also a Layer 1 blockchain, but given its focus on interoperability and being the blockchain of blockchains, some people call it Layer 0.
Layer 2: these are also blockchains, but they are integrated to a particular Layer 1 blockchain, to help unload the high amount of transaction volume, providing a scaling solution with faster and cheaper transactions, but still using the main chain’s network security and settlement system.
Some examples are: Polygon (MATIC), a Layer 2 to Ethereum; Bitcoin Lighting Network, a Layer 2 to Bitcoin.

This is one of the largest sectors in crypto. Not a surprise, since the entire crypto world was created due to inefficiencies of the existing financial system to begin with.

There are different subsectors here, including:

Exchange Platforms: as the name suggest, these are exchange platforms that enable the buying and selling of cryptocurrencies. If you are investing or consider investing in crypto, you for sure are familiar with some of the biggest names, like Coinbase, Binance (BNB), crypto.com (CRO), Gemini, etc.
Payments: cross-border payment systems enablers, aiming to complete the transactions in a faster, cheaper, and safer way, without the middlemen in the existing financial system.
Main examples are Ripple (XRP) and Stellar (XLM).
Lending/Borrowing: this is essentially where a lot of the Defi (decentralized finance) hype started, but despite the speculation, what these companies are looking to do is to enable access to capital for those who need it, just like how a bank would work. The other side of the transaction would be those who would like to put their tokens to work in exchange for a return. Famous examples of these are Compound (COMP), Maker Dao (DAI), Aave (AAVE), to name a few.
Wallets: just like in the real world we need a wallet to store our money, in crypto we also need wallets to store our crypto assets, and there are certainly different options. Click here for a 101 on crypto wallets

5. Data

Information is overflowing in crypto space. This category comprises those data-based projects.

Oracles: blockchain networks operate within their environment, so in order for all these projects to be valuable in the real world, they need access to secure off-chain resources, data, and all sorts of information such as crypto prices, news, stock market, etc. Oracles help bridge these two worlds, and the leader in this space is Chainlink (LINK).
Storage: if there is data, there needs to be a place to store it. Filecoin (FIL) is the leading example here, as a peer to peer cloud storage network.
Index: projects such as The Graph (GRT) offers indexing protocol services for querying and organizing blockchain data.

6. NFTs

NFTs, or non fungible tokens, are the digital representation of the ownership of anything that is unique, providing records of ownership and authenticity.

It’s fair to say that 2021 was the year of NFTs, as it disrupted some of the most obvious industries such as gaming, art & collectibles, as well as entertainment. However, it would be wrong to limit NFTs to only these sectors.

As the provable digital representation of any possession, material or digital, there is a definitely a much wider usecase.

For a beginners friendly guide about NFT, click here.

7. Entertainment

Because of the NFT boom and Web 3 trend, many sectors under Entertainment category have started to flourish:

Gaming & Metaverse: as we go increasingly more digital, virtual experiences are leveraging on blockchain technology to connect to the larger crypto economy.
Some of the main examples are Axie Infinity, The Sandbox, Decentraland, Gala.
Content: some of Web 3 examples in this sector that are looking to offer a decentralized alternative to users are Audius (music streaming), Mirror (content writing) and Theta (video streaming).

Click here for an explainer of what Web 3 is

Click here for a 101 on the Metaverse

8. Meme Coins

When you see one, you’ll recognize it. I mean, there is usually a dog face on it, so kinda impossible to miss.

These are cryptocurrencies that are inspired by popular memes on social media or other humorous characteristics, usually as a parody of ‘serious’ cryptocurrencies.

So really, most meme coins don’t really have a particular use case, and exist mostly for the hype and speculation.

For more details, you can have a read here.

9. Others…

Such as supply chain, health care, IoT… these are all sectors where crypto are rapidly expanding into, so don’t be suprised if you come across any projects in these or other industries.

Maybe in a year or less, I’ll need to update this list again!

Reiterating…

Reiterating why having this mental map is important…

it helps you visualize and understand the magnitude of this space,
you can build a structured organization of the different projects,
this will help diminish the noise and the overwhelming amount of information,
this will also help you navigate the crypto market,
hopefully then you can make more informed decisions.

Do you agree with my categorization? Suggestions are always welcome!

Thanks for making it this far! If you enjoyed it, make sure to like and share so more people can benefit from it!

Crypto Explained