Bitcoin and other cryptocurrencies are widely – but wrongly – panned as unregulated casinos or Ponzi schemes that create no real value. For example, US Senator Elizabeth Warren called crypto a “threat to financial stability,” while the UK’s Treasury Select Committee said that cryptocurrency ownership “more closely resembles gambling than a financial service.”
While some cryptocurrencies are mainly speculative, many serve specific business or functional purposes. We can identify some of the value created by cryptocurrencies by breaking them into four general categories: Bitcoin, stablecoins, meme coins, and utility tokens.
1. Bitcoin
Bitcoin (BTC) is the original cryptocurrency. It is the base token of the Bitcoin protocol, a decentralized proof-of-work blockchain based on the 2008 whitepaper by Bitcoin’s anonymous founder Satoshi Nakamoto. The protocol has a limited supply, with an eventual maximum of 21 million bitcoins.
Unlike most cryptocurrencies, Bitcoin has only one purpose: to be used as money – or, more specifically, as a system of payment. It has no other features. The Bitcoin network is decentralized, which makes it highly resilient and hard to disrupt, though coin prices can be quite volatile.
With a market capitalization of around $2 trillion, Bitcoin is by far the largest cryptocurrency by market value. No other blockchain has anywhere near its history, its reliability, or its dedicated flock of fans and users. Bitcoiners often say that “Bitcoin is not crypto” because it is so fundamentally different from other blockchains that it deserves a category of its own.
2. Stablecoins
Stablecoins are tokens whose value is tied to a particular asset, most commonly the US dollar. They are widely used in electronic payments since they provide the benefits of blockchain-based payments without Bitcoin’s price volatility. Stablecoin payments are especially prominent in countries with unstable national currencies, whose governments cannot be trusted to maintain the value of their money.
The two most widely used stablecoins, Tether (USDT) and Circle’s USDC, have market capitalizations of about $148 billion and $62 billion, respectively. Both tokens are readily redeemable for US dollars. Circle is regulated as a money transmitter in the United States. Tether is a foreign entity, but is in the process of launching a regulated US subsidiary.
The opposite of gambling, stablecoins are safe, stable assets that serve as an electronic version of US dollars.
3. Utility tokens
Utility tokens are cryptocurrencies created by blockchains that provide some utility or service.
One example is Filecoin (FIL), which offers online storage, likeiCloud or Microsoft OneDrive, but on a decentralized public blockchain. The Filecoin blockchain provides safe and private file storage on the decentralized Filecoin network. The FIL token is used to pay for storage and is paid to participants to provide storage space on the Filecoin network.
A subset of utility tokens known as Decentralized Physical Infrastructure (DePIN) uses decentralized blockchains as a replacement for government or corporate-based infrastructure. The Helium network (HNT), for example, provides a block-chain based marketplace for buying, selling, and transmitting WiFi and mobile phone data.
In addition, the decentralized finance (DeFi) industry is building a parallel financial system on blockchain technology, which is cheaper and more transparent than traditional exchanges. Larry Fink, CEO of Blackrock, the world’s largest asset manager, has said that the tokenization of traditional assets will be “the next major evolution in market infrastructure.”
Unsurprisingly, utility tokens – those with actual functionality and business purposes – tend to be the category most attractive to major cryptocurrency investment funds and venture capitalists.
4. Meme coins
There is one category of crypto tokens meant purely for speculation: Meme coins. These tokens have no functional purpose and no intrinsic value aside from the fun of trading. They are based on “meme” characteristics, like symbol or story that drives their prices. Many use pictures of dogs, frogs, and hats. The most popular meme coin DOGE, represented by a picture of a Shiba Inu dog and frequently referenced by Elon Musk, has a market cap above $26 billion. Another token, FARTCOIN, is based on, well, fart jokes.
There are political meme coins for candidates like BODEN and TREMP, whose prices bounced around before the 2024 elections as candidates moved in and out of favor, with both eventually crashing. After the election but before taking office, President Trump launched his own meme coin TRUMP, which peaked in late January, then lost 80 percent of its value within a few months.
Most meme coins trade for the fun of participating in a shared joke or the excitement of betting that the price will rise. They are indeed gambling in the truest sense, but despite these tokens being amongst the most well-known to non-crypto folk, this category of tokens represents only a small segment of the crypto market.
While there is certainly much speculation in cryptocurrencies, as in all financial markets, the cryptocurrency industry is more than meme coins. Bitcoiners hope Bitcoin will become the world’s dominant means of payment or at least a common reserve currency. Stablecoins provide an efficient means of payment and a relatively stable store of value, at least as far as the US dollar does. Utility tokens create real value or serve some business function.
Collectively, cryptocurrencies provide a variety of functions and use cases, ranging from specific business purposes to no purpose at all. Users can gamble if they want to, or they can make more informed strategic investments. Crypto is more than just a meme coin casino.