In this guide, we’ll discuss and define the main types of crypto assets including store of value, stablecoins, and smart contract capable. We’ll also provide multiple examples of assets that fall into them.
Store of Value
Store of value assets are theoretically those that either remain at a stable value or increase in value over time. They’re investment assets that don’t really suffer from depreciation or inflation. Historically, gold, silver, and other precious metals were considered to be store of value assets. When it comes to crypto however, store of value assets are those that use proof of work consensus mechanisms and therefore have to be mined.
Ethereum was a proof of work asset and could likely have been considered a store of value had it not switched to proof of stake in fall 2022. Nowadays for the most part, it is only Bitcoin and its forks and spin offs that use proof of work. Let’s look at some examples.
The gold standard for store of value digital assets is Bitcoin. That’s likely why it’s often referred to as digital gold. New Bitcoin must be mined using computer processing power and electricity, in a process referred to as Bitcoin mining.
The mining reward for Bitcoin diminishes over time, which in conjunction with its fixed maximum supply of 21 million BTC, makes for a deflationary store of value asset. It is the original digital asset, and there’s a reason why Bitcoin makes up over 50% of the entire crypto market.
Bitcoin Cash (BCH)
Bitcoin Cash was birthed from Bitcoin, as it’s a fork of it. A fork is when there is a difference in opinion regarding the direction of a blockchain project. A fork requires a new chain to be created while allowing for the old one to still function, however, a new asset is required for the new chain so that it can function as well.
The Bitcoin Cash fork was the result of constantly rising transaction fees on the original BTC network. Some holders wanted an increase to the size of blocks (which affects the number of transactions that can be included in each) to reduce these costs.
A debate within the Bitcoin community occurred, and the hard fork took place on August 1, 2017. This fork resulted in everyone that was holding BTC being given an equivalent amount of BCH.
Litecoin (LTC) is a cryptocurrency that was created based on Bitcoin’s code. The difference between Litecoin and Bitcoin is the hashing algorithm used for mining, the supply (84 million vs 21 million), block time (2.5 minutes rather than 10 for BTC), and more. LTC has extremely low transaction fees, making it possible to use for micropayments and point of sale. LTC has remained a top crypto asset throughout its existence, and like Bitcoin it has a decreasing emission rate over time, and halves in the same way Bitcoin does.
Stablecoins are digital assets that have a stable, pegged value to a real world currency. Generally, they’re pegged to the USD, but there are stablecoins for just about every fiat currency. For each stablecoin we’ll quickly mention how much their issuance is currently and how they’re backed.
Tether USD (USDT)
USDT is the most popular stablecoin on the market, with an issuance of over $90 billion tokens. Tether backs up its stablecoin with a variety of reserve assets, with the majority being cash or cash equivalents.
USD Coin (USDC)
USDC is issued by Circle and is the second most popular stablecoin on the market with an issuance of over $24 billion. Circle backs up its stablecoin with a mix of cash and short-term U.S. Treasury bonds.
DAI is the third on the market for stablecoins with an issuance of over $4.5 billion. It works differently from USDT and USDC because it is issued through the MakerDAO application.
In order to mint DAI you must provide collateral, and then you can borrow DAI as long as you maintain a collateral ratio of at least 101%. DAI is collateralized by a mix of other cryptocurrencies that are deposited into smart contracts, rather than being collateralized by cash.
Smart Contract Capable
Smart contracts digital assets are those that can be used for all sorts of real world transactions such as taking out loans, earning interest, and much more.
These assets have entire ecosystems including decentralized exchanges, lending platforms, and more. As development on smart contracts improves over time, these networks could increasingly be a part of global crypto use and perhaps become mainstream payment networks.
Ethereum (ETH) switched from a proof of work consensus algorithm to a proof of stake one in September 2022 or it would be a store of value and smart contract hybrid asset. The switch dramatically reduces the network’s energy consumption and prepares it for future growth as blockchain adoption increases. Ethereum is a direct competitor to all the other smart contract capable networks noted below. Ethereum and all the other assets in this section can be staked to receive a reward over time.
Smart contract capable assets allow users to access a variety of services. Some of the most popular services on Ethereum are Uniswap (UNI), the decentralized exchange with the most trading volume globally, and AAVE (AAVE), a lending and borrowing platform.
Cardano was created by Charles Hoskinson, who was one of the founders of Ethereum. The main difference between Cardano, Ethereum, and the other smart contract assets in this section, is Cardano’s unique native token system. The native token system enables Cardano to support a wide variety of transactions and eventually will allow for transaction fees to be paid in any asset on the network. Cardano’s network has a steadily increasing transaction speed and low fees that are known precisely in advance, while also being able to send multiple tokens and assets in one transaction.
Solana has quickly grown in popularity and that can be attributed to its low-cost transactions that are also lightning fast, along with an array of DeFi and NFT platforms. It emerged as a serious competitor for both Ethereum and Cardano, but it has also faced a series of network outages in its past. It is currently Visa’s network of choice for processing USD Coin (USDC) payments.
Though it can be overwhelming to look at the cryptocurrency market and decide what to invest in, it certainly helps when you can categorize the assets. By knowing what category each cryptocurrency falls into, it can help you create a diverse investment portfolio that is built for long-term success. As cryptocurrency and blockchain technology become more mainstream, it will be interesting to see what other categories of digital assets emerge.