The Three Major Types of Cryptocurrencies You Should Know
On Sep 25, 2020
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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.
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.