The short answer
Bitcoin was designed to be digital money with a fixed supply that no company or government controls. Ether is the fuel for a network that runs programs, not just payments. Stablecoins are tokens that try to hold a steady value, usually one US dollar, by being backed by something.
The first two move in price constantly. The third is designed not to, which is a design goal rather than a guarantee. All three can lose value, and none of them is a bank deposit.
Why these three
This page is not a ranking and not a shortlist of what to own. These three are here because they explain three completely different ideas, and once you understand them, most other cryptocurrencies are a variation on one of the three.
Someone describing a new coin is almost always describing a change to one of these models: a different way of limiting supply, a different way of running programs, or a different way of holding a peg. Knowing the originals makes the sales pitch much easier to follow, and much easier to question.
Bitcoin
Bitcoin
The original cryptocurrency, launched in 2009
- What it is for
- Sending and holding value without a bank, a company or a government in control of the network.
- Who issues it
- Nobody. New bitcoin is created by the network itself on a fixed schedule, and there is no company behind it to call.
- What backs it
- Nothing, in the sense a currency or a deposit is backed. Its price is whatever people are willing to pay at that moment.
- Supply
- Capped at 21 million by the rules of the protocol. This is the feature most often cited by supporters, and it is a design rule rather than a promise about price.
- How value behaves
- Volatile. Large moves in both directions are normal rather than exceptional.
- Main risks
- Price falling, losing access to your own keys, and fraud involving people who want you to send it somewhere.
What Bitcoin is often assumed to be, and is not
Two misunderstandings cause real harm, so they are worth correcting directly.
- It is not anonymous. Transactions are recorded permanently on a public ledger that anyone can read. Addresses are not names, but they can often be connected to people, and the record does not disappear.
- It is not reversible. There is no chargeback, no fraud department and no way to undo a payment because you were deceived. This is the single property that scams rely on most.
Ether and Ethereum
The naming confuses almost everybody at first, and it is worth getting straight before anything else. Ethereum is the network. Ether is the asset that the network runs on. People say "Ethereum" when they mean the coin constantly, including people who should know better.
Ether
The asset used to run the Ethereum network, launched in 2015
- What it is for
- Paying to run programs. Ethereum can hold code that executes automatically, and ether is what you spend to make that code run.
- Who issues it
- The network, under rules the Ethereum community agrees on. Unlike Bitcoin, those rules have changed significantly over time.
- What backs it
- Nothing, in the deposit sense. Demand comes largely from people needing it to use the network.
- Supply
- No fixed cap. Issuance and removal of ether both happen under rules that have been changed before and could be again.
- How value behaves
- Volatile, like Bitcoin, and often moving in the same direction.
- Main risks
- Price falling, key loss, and an additional one: programs on the network can contain bugs or be deliberately malicious.
What a smart contract actually is
A smart contract is a program stored on the network that runs exactly as written when its conditions are met. It is not a legal contract, and nothing about it is intelligent.
The useful part is that it runs without anyone being able to stop it partway. That is also the dangerous part. If the code contains a mistake, it executes the mistake faithfully. If the code was written to take your funds under certain conditions, it does that faithfully too, and "the contract did what it said" is the standard answer afterwards.
Gas fees, briefly
Running a program costs a fee, usually called gas, paid in ether. The cost changes with how busy the network is, which is why people complain about fees at some times and not others. There is no fixed price list.
Stablecoins
This is the category most worth slowing down for, because the name does a lot of work that the product does not always deliver.
A stablecoin is a token designed to hold a steady value, almost always one US dollar. It exists because moving in and out of ordinary bank money is slow, so traders wanted something dollar-priced that lives on a blockchain.
Stablecoins
Tokens designed to track a currency, usually the US dollar
- What they are for
- Holding a dollar-denominated balance on a blockchain, and moving value between platforms without converting to ordinary currency.
- Who issues them
- Usually a company. This is the key difference: with most stablecoins there is an issuer, and you are relying on them.
- What backs them
- It depends entirely on the design, and the differences matter more than anything else on this page. See below.
- How value behaves
- Usually close to the peg. "Usually" is doing real work in that sentence.
- Main risks
- The backing not being what was claimed, the issuer failing or freezing funds, and the peg breaking.
Three ways a stablecoin can be backed
When someone mentions a stablecoin, this is the question worth asking: what is actually behind it?
| Model | What is behind it | What can go wrong |
|---|---|---|
| Cash and reserves | The issuer says it holds dollars and similar assets equal to the tokens issued | The reserves may not be what is claimed, may not be independently verified, or may not be accessible quickly when many people redeem at once |
| Crypto collateral | Other cryptocurrency is locked up as backing, usually worth more than the tokens issued | The collateral is itself volatile, so a sharp fall can force automatic liquidations and strain the peg |
| Algorithmic | No meaningful backing. Software adjusts supply and relies on trader behaviour to hold the peg | The mechanism depends on confidence. When confidence goes, there is nothing underneath it |
Scroll the table sideways to see every column.
Pegs have broken, and not only in theory
In 2022 a large algorithmic stablecoin lost its peg and collapsed within days, wiping out most of the value held in it along with the linked asset supporting it. People who believed they were holding the equivalent of dollars were not.
Reserve-backed stablecoins have also traded below their peg during periods of stress, recovering afterwards. A peg is a target, not a promise, and no stablecoin carries deposit insurance.
Why "stable" is the wrong word to relax about
Holding a stablecoin is not the same as holding dollars in a bank account, even when the balance reads the same.
- No deposit insurance. Bank deposits in the US are insured within limits. Stablecoin balances are not, whoever issues them.
- You are exposed to the issuer. With most stablecoins there is a company behind the token. Their solvency, their reserves and their decisions all affect you.
- Funds can be frozen. Several issuers can and do freeze specific balances, which may be reasonable in fraud cases and is still something to know in advance.
- Interest offers are a separate risk. Any arrangement paying a yield on a stablecoin is a different product with its own risk of loss, whatever rate is advertised.
Side by side
The same five questions, answered for each category. This is the comparison worth remembering, because it is the shape of the question rather than any particular answer.
| Question | Bitcoin | Ether | Stablecoins |
|---|---|---|---|
| Designed for | Money without a central controller | Paying to run programs on a network | Holding a steady, dollar-linked value |
| Issued by | The network, on a fixed schedule | The network, under changeable rules | Usually a company |
| Supply limit | Capped at 21 million | No fixed cap | Grows and shrinks with demand |
| Price behaviour | Volatile | Volatile | Usually near the peg, not guaranteed |
| Who you depend on | Yourself, for key safety | Yourself, plus any program you use | The issuer, plus yourself |
| Insured | No | No | No |
Scroll the table sideways to see every column.
Everything else
Beyond these three sit thousands of other tokens. They are worth understanding as categories rather than individually, and this site does not cover specific ones.
- Alternative coins. Networks offering a different trade-off: faster, cheaper, or organized differently. Some are serious engineering projects. Many are not.
- Tokens built on another network. Most new tokens are not their own network at all. They are created on an existing one, which can take minutes and costs very little. The existence of a token proves nothing about the people behind it.
- Joke and meme tokens. Created without any claimed use, sometimes openly. Value depends entirely on attention.
- Tokens attached to a product or promise. Where most fraud lives, because a promise is cheaper to make than a product.
The pattern that matters more than any coin
If someone is urging you toward a specific token, especially one you had not heard of, the token is rarely the point. The pressure is the point.
Our red flags guide covers the tactics in detail, and common crypto scams covers the scripts they arrive in.
What none of these are
True of all three categories, without exception.
- Not insured deposits. No equivalent of deposit insurance applies to any of them.
- Not reversible. No chargebacks and no fraud department.
- Not free of tax consequences. Disposing of crypto can create a reportable event, including swapping one token for another. Tax rules are specific to your situation and we do not give tax advice.
- Not safe because they are well known. Familiarity is not a protection, and the size of a project says nothing about what it will be worth.
- Not recommended here. Describing how something works is not an endorsement of owning it.