Different Types of Cryptocurrency
Updated: Jul 13, 2021
In this era of globalization and massive internet penetration, never has the idea of the world as “a global village” seemed more relevant. However, the internet hasn't just enabled us to harness the vast opportunities, resources, and information available to us; it has also exposed us to the realm of digital assets. Simply put, digital assets are anything that exists in digital format and can be made available for use. A notable example of this is cryptocurrency.
What is Cryptocurrency?
A cryptocurrency, or crypto, is a digital asset that can function as a medium of exchange. In the world of crypto, coin ownership records are safeguarded in an online database, otherwise known as a register. These registers, ledgers, and wallets are coded to secure transaction records and verify crypto coin ownership transfer. Unlike other types of currency, cryptocurrency doesn't exist in physical form, such as banknotes and coins, and there are no central authorities involved in its issuance. Therefore, they do not come under the auspices of a centralized banking system.
History of Cryptocurrency
The conversation around cryptocurrency has encompassed many different types of narrative. In 1983, an American called David Chaum began devising anonymous digital money called e-cash. Later on, e-cash was implemented in 1995 through Digicash, a primitive cryptographic payment method. This method needed user software to take out cash from a bank and implement specific coded keys before sending them to a second or third party. This action made cryptocurrency untraceable by the issuing bank, a third party, or even the government.
Many observers have likened cryptocurrency to Ponzi schemes, pyramid schemes, and so on. Some economists also have argued that the use of cryptocurrency could significantly hamper government transparency in providing figures that could steer the economy forward.
While conventional banking institutions have strong customer third-party protections put in place, there is no "middleman" with the power to limit a customer's losses if a crypto (Bitcoin, for example) is stolen or lost. Fraud protection is one major feature crypto doesn't have when compared to credit cards. Another downside is the environmental impact of cryptocurrency mining, which consumes a considerable amount of electricity, adding millions of tonnes of carbon dioxide emissions to the atmosphere. These issues are becoming more prescient as cryptocurrency starts to creep into more mainstream channels. We are seeing organizations like Flexa, Gemini, Nordstrom, and Starbucks integrate cryptocurrencies into their point of sale systems, allowing their customers to pay in crypto.
What are the types of Cryptocurrency?
Cryptocurrencies, broadly speaking, can be classified into three categories:
Bitcoin, which started as open-source software, was invented in the year 2008. Bitcoin is the "pace-setter" crypto and remains the most valuable cryptocurrency in the world by market capitalization. Its electronic payment feature allows individuals to transact directly without third party involvement. Satoshi Nakamoto, who is regarded as the creator of Bitcoin, has been a source of uncertainty for many people. It remains unclear whether Nakamoto is simply a pseudonym, a group of individuals who created Bitcoin, or an individual. Many observers have regarded it as the future currency and the digital replacement for banknotes, mints, and gold. This is understandable as you can spend bitcoin and save it like conventional money. It is also a finite resource, just like gold.
The launch of Bitcoin paved the way for countless new cryptocurrencies to be established. These new coins are commonly referred to as alternative coins or altcoins. Altcoins often serve a similar purpose to Bitcoin. There are notable exceptions though, such as Ethereum, which encompasses a broader range of uses. Ethereum gained prominence as the premier programmable blockchain, and allows builders to develop and deploy decentralized applications.
IOTA, Litecoin (created by Charlie Lee) encompass all altcoins that were invented to either serve as a complementary cryptocurrency to Bitcoin or to operate independently on their own using DLT. There are well over 800 altcoins in existence, and based on market cap, Ethereum, Ripple, Litecoin, and Bitcoin Cash are the top coins to invest in.
The third category of cryptocurrency are tokens. Tokens are slightly distinct from Bitcoin and altcoins. They are not capable of independent operation and rely solely on the network of other cryptocurrencies. They are built on the existing blockchain of other cryptocurrencies and do not have their own blockchain. There are over 1500 tokens in existence regulated on the blockchain platform of other cryptocurrencies such as Ethereum, NEO, Omni, TRON. Notable examples of tokens are Huobi Token, Chainlink, Tether, UNUS SED LEO. Unlike Bitcoins, Tokens are much easier to develop since you don't need to build a blockchain from scratch.
Today, there are well over 3000 cryptocurrencies within the categories listed above, we will take a look at just a few of the most common ones below:
1) Bitcoin Cash
Bitcoin Cash is a form of digital currency that has been developed to upgrade the features of Bitcoin. Bitcoin Cash expanded the size of the blocks, allowing more transactions to be handled more efficiently.
2) Ethereum (ETH)
Developed in 2015, Ethereum is a type of open-source cryptocurrency built on blockchain technology. As well as controlling the ownership of digital currency transactions, the Ethereum blockchain also focuses on running the computer code of any decentralized application, enabling application developers to pay transaction fees and services on the Ethereum network.
Litecoin was released in 2011, and it was one of the first cryptocurrencies to follow in Bitcoin's footsteps and was sometimes referred to as "Silver to Bitcoin's Gold." It was founded by Charlie Lee, an MIT graduate and former Google developer. Litecoin is based on an open-source global payment network that is not operated by any centralized power and uses "scrypt" as proof - of - work that can be decrypted with the aid of consumer-grade CPUs. While Litecoin is like Bitcoin in many respects, it has a higher block generation rate and thus provides faster transaction confirmation time. Besides developers, there are an increasing number of traders who embrace Litecoin. As of January 8, 2020, Litecoin has a market cap of $3.0 billion and a per token valuation of $46.92, rendering it the sixth-largest cryptocurrency in the world.
Tether was among the first and most famous in a category of so-called stablecoins. These cryptocurrencies tend to link their exchange value to a currency or some external reference point to mitigate volatility. Since most digital currencies, including major chains like Bitcoin, have undergone repeated cycles of extreme fluctuations, Tether offers a degree of stability that has the potential to draw people that may otherwise be wary.
Launched in 2014, Tether defines itself as a "blockchain-enabled framework built to promote the usage of fiat currencies in a digital manner." This Cryptocurrency enables individuals to use blockchain networks and similar technology to deal in conventional currencies while minimizing the uncertainty and confusion sometimes associated with digital currencies. On January 8, 2020, Tether was the fourth-largest market cap cryptocurrency, with a cumulative market cap of $4.6 billion and a per token valuation of $1.00.1.
5) Ripple (XRP)
Ripple was launched in 2012 as both a cryptocurrency and a digital payment network for monetary operations. It is a global settlement network designed to establish a fast, safe, and low-cost way of exchanging money. Ripple allows any form of currency to be traded, from USD and Bitcoin to gold and EUR, and links to banks, unlike most currencies. Ripple further differs from other digital currency forms since its main emphasis is not on individual transactions but on transferring money on a broader scale.
6) Bitcoin Satoshi's Vision (Bitcoin SV)
Bitcoin Satoshi's Vision (BSV) is the outcome of the Bitcoin Cash break or hard fork in 2018. It is meant to more closely resemble Bitcoin's original intent, in particular decentralization and the usage of cryptocurrencies as payments.
Formerly known as Antshares and founded in China, NEO is aiming to become a major international crypto player. It is focused on smart contracts (digital contracts) that allow members to conclude agreements without using a broker. NEO lead developer Erik Zhang told Reddit AMA that NEO has three key benefits for easier adoption in the real world: architecture, more developer-friendly smart contracts, and digital identity and digital assets.
The NEO White Paper states that developers would use common programming languages (e.g., Java or C#) to construct smart contracts. On the other hand, Ethereum usually activates the programming languages, which developers first have to learn before developing smart contracts on their blockchain.
IOTA was launched in 2016 and stood for the Internet of Things Application. Unlike many other Blockchain systems, it doesn't merely work for blocks and chains; it works for mobile devices on the Internet of Things (IoT). The only thing you have to do to use it is to search two other previous transactions on the IOTA ledger called the Guided Acyclic Graph (DAG), but the IOTA developers call it The Tangle.
According to Coin Central, computers need to be able to buy more power, space, energy, or data when they need it and sell those services when they don't need it. Of course, various forms of blockchain don't work in a vacuum—they require a little human support to keep them running. If systems require redesign or upgrade, or occasional steering, there have been two ways to do this—hard forking and soft forking.
9) Binance Coin (BNB)
Binance Coin is an approved token of Binance's cryptocurrency trading platform. It was founded in 2017 and has gradually grown to become the biggest exchange in the world in terms of the overall trading volume. Binance Coin Token lets Binance users quickly swap cryptocurrency among hundreds of different cryptocurrencies across the Binance network. BNB is being used to facilitate trade purchase transfers which can also be used to pay for some goods and services, including travel expenses and more.
What are the benefits of Cryptocurrencies?
Even if you have zero interest in getting involved with crypto, you'll still be keen to know how much crypto will change the political world in years to come. The revolution of conventional banking techniques is also a significant change one should look forward to. A few of the advantages crypto has over traditional banking methods are:
▪ Financial stability
▪ Growth investment
▪ Better payment structure
▪ Smart contracts
▪ Decentralized social media
With this in mind, you could be inspired to develop your own cryptocurrency as a trading tool for the future.
Is Cryptocurrency Legal?
The legal status of cryptocurrencies has significantly been disputed across regions. Opinions keep evolving and changing around crypto trading while the stance of many countries of the world remains unchanged. Some countries, such as the United Arab Emirates, Nepal, Pakistan, Morocco, Iraq, Egypt, Bolivia, and Algeria, have placed a total ban on trading and using cryptocurrencies.
Some countries also allow the free trade of cryptocurrencies only in specific provinces or states. In contrast, others like China placed a ban on the trading or usage of Bitcoins by their financial institutions. The argument has been that cryptocurrencies pose a potential threat by evoking economic sanctions by individual countries. The crypto market's lack of regulation has also increased Bitcoin scams, tax evasion, and money laundering.
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