The Three Major Types of Cryptocurrencies You Should Know
The number of existing cryptocurrencies is increasing very fast; tomorrow, a new digital currency could issue! There are presently more than 3000 cryptocurrencies in presence. Each one of them falling into one of the three major categories: Bitcoin, altcoins, and tokens.
A cryptocurrency is a digital or virtual asset designed to work as a medium of exchange. It is supporting by a decentralized peer-to-peer computer network(blockchain technology). Cryptos are encrypted with very complex code systems using cryptographic protocols. There is no central authority that manages this system. In recent days, they have been heard by many, become more and more popular. Cryptocurrencies draw a lot of attention from heads of state to big corporations. These virtual coins are now considering as the currencies of the future. In this blog, we will explain to you the three most important types of cryptocurrency you need to know.
Bitcoin cryptocurrency operates on blockchain technology that fundamentally separates it from all previously created electronic currencies and payment systems. Bitcoin(BTC) is undoubtedly the most well-known and most widely using blockchain-based cryptocurrency. Satoshi Nakamoto launched this decentralized payment system in 2009 after the global financial crisis that had surge effects around the world. The Bitcoin network works through mining, as a result of which new bitcoins mined. Transactions in the BTC network occur between two parties, meaning that funds are transferred directly from peer – to – peer, without the involvement of any middleman like banks, the state, etc.
If you take a look at our blog about Bitcoin, you can find in-depth information on this subject.
Altcoins(alternative to bitcoins)
A few years later, after Bitcoin(BTC), new cryptocurrencies began to emerge. That means you start to deal with a variation of Bitcoin(BTC). An altcoin is any digital cryptocurrency similar to Bitcoin. The term is an abbreviation for “alternative to Bitcoin” and used to describe any cryptocurrency that had technological alternatives to Bitcoin.
The first altcoin is Namecoin(NMC), considered to be made in 2011. The famous Litecoin (LTC) emerged shortly afterward as an improved version of bitcoin. There are currently more than three thousand altcoins in existence. Most popular altcoins have the same basic building block as Bitcoin. Both use Blockchain technology. However, it’s crucial to understand that not all altcoins are just alternative versions of Bitcoin. Some are very, very varied from Bitcoin. They have very diverse goals/purposes, and they are offering something a little different.
Ethereum(ETH) and NEO are examples of altcoins that are different from bitcoin. Ethereum and NEO designed as extensive platforms for building applications on a blockchain, rather than being used as a digital currency. When Ethereum launched in 2015, it brought new technology to the crypto world. This technology is called a smart contract. A smart contract consists of specific codes and can automatically execute transactions on its own when certain things happen. It runs on the “Ethereum Virtual Machine.” ETV is a distributed computing network consisting of all devices running Ethereum nodes.
The third type of cryptocurrency is tokens. Tokens do not have their blockchain. Therefore, they often represent a particular asset on another blockchain. This means the tokens need a platform like Ethereum to exist and operate. Examples of tokens are Tether, Chainlink, Crypto.com Coin, and etc. There are currently hundreds of tokens with a high market capitalization that builds on Ethereum. But Ethereum is not the only platform for tokens. Tokens can also build upon platforms like TRON, Binance Coin, NEO.
Users mostly use their tokens in DApps (decentralized applications). These are the apps that can be built on blockchains like Ethereum and NEO. Like digital currencies, tokens can also be sent and received. The benefits of cryptocurrency tokens are their fast processing and less volatility versus fiat currencies.
There are several types:
- Equity tokens – ownership of an asset(company stock)
- Utility tokens – used on online apps(game currency)
- Asset-backed tokens – value pegged to real-world assets
Generally, a token replaces something else. Through the Initial Coin Offerings (ICO), a crowdfunding tool, they are created and distributed to the public.
To summarize, cryptocurrencies are real money in a sense. They can act like real money, but this time they take the form of digital or virtual. They are not managing or governing by any central authority. Cryptocurrencies already start to change the world. There are many different types of cryptocurrencies and it is entirely up to you which one you use for your transactions.