Types of Crypto: A Complete Guide
In this cryptocurrency guide, we will explore everything you need to know about cryptocurrency and the different types of crypto. If you're curious about crypto, read on!
Di you know that at the end of 2021, the crypto market cap has already sat over $2.2 trillion globally? Cryptocurrency is becoming a very hot topic right now, and for good reason. This innovative technology is changing the way we do business online. It even has the potential to revolutionize the world economy.
What is Cryptocurrency?
Cryptocurrency is a digital or virtual currency. It uses cryptography to secure its transactions and to control the creation of new units. Cryptocurrencies are decentralized. This means they are not subject to government or financial institution control. In 2009 Bitcoin, the first and most well-known cryptocurrency launched.
Cryptocurrency acts as a way of exchanging value online. Transactions are made through a network of peers, without the need for a third party such as a bank or financial institution. This makes cryptocurrency transactions faster and more efficient than methods like wire transfers.
While Bitcoin may be the most well-known cryptocurrency, it is far from the only one. There are now thousands of different types of cryptocurrency. These include Bitcoin Cash, Ethereum, Litecoin, and Ripple.
The ultimate goal of cryptocurrency is to replace traditional currency entirely. However, this is likely a long way off and will likely take many years to achieve. For now, cryptocurrency is best used as a means of exchanging value online in a fast and efficient manner.
Cryptocurrency vs Tokens
So what's the difference between cryptocurrency coins and crypto tokens? Often people use the terms crypto coin and crypto token interchangeably, but they are different.
Confused? Let's break it down.
Coins operate on what we refer to as blockchains. Blockchains are used by cryptocurrencies to keep track of all transactions involving their native cryptocurrency. Ether (the native cryptocurrency of Ethereum) transactions are recorded on the Ethereum blockchain.
Transactions with BTC (Bitcoin) are made on the Bitcoin blockchain. Every transaction is encrypted and available only to network members.
Cryptocurrency coins are also created through a process known as mining. Computers around the world work to verify and record transactions on a blockchain to create new blocks. In return for their services, miners receive new cryptocurrency as a reward.
Cryptocurrency tokens do not have their blockchain. Rather they use existing blockchains such as Ethereum or Bitcoin.
Ethereum is one of the most popular blockchains that several tokens run off of. For example, the popular ERC20 token runs off Ethereum.
Projects that want to launch their cryptocurrency will create tokens so they don't have to create and maintain their blockchain. Tokens are issued as smart contracts on an existing blockchain. These tokens can be used for a variety of purposes, such as voting, fundraising, or representing a commodity.
Types of Cryptocurrency: Most Common Coins and Tokens
We've established two of the core units of cryptocurrency you may want to wrap your head around are coins and tokens.
Now that you know what cryptocurrency is, let's look at some of the most popular types of cryptocurrency coins and tokens. Keep in mind that there are thousands more types beyond what we will cover here but these are some common types to get started with.
It should come as no surprise that the most well-known type of cryptocurrency is Bitcoin. Bitcoin is the first and original cryptocurrency. Satoshi Nakatomo created BTC in 2009.
It was the first peer-to-peer digital currency to use blockchain technology to keep track of transactions. Bitcoin uses a proof-of-work consensus algorithm to secure its blockchain.
Ether is the cryptocurrency that powers the Ethereum network. Vitalik Buterin created and launched ETH via an ICO in 2014.
The core purpose of Ether is to pay for transaction fees on the Ethereum blockchain. Other purposes include dApp and smart contract development. Ether uses a proof-of-stake consensus algorithm.
Charlie Lee created Litecoin in 2011 as a lighter and faster alternative to Bitcoin. Litecoin uses the Scrypt algorithm.
Litecoin's algorithm requires more memory. It is, therefore, less susceptible to ASIC-based mining.
Ripple is unique among cryptocurrencies as it is a payment network, RippleNet.
It was first released in 2012 by the creators of Ripple Labs, Ryan Fugger, and Jed McCaleb.
Cardano is a relatively new cryptocurrency, launched in 2017 by Input Output Hong Kong (IOHK).
It is unique in that it is the first blockchain project created from scratch with scientific philosophy and peer-reviewed research. Cardano uses the Ouroboros proof-of-stake algorithm.
Polkadot aims to be a universal platform for blockchains. Gavin Wood, a co-founder of Ethereum, created Polkadot. Polkadot uses the proof-of-stake algorithm. It will be able to host multiple types of blockchains, including public and private chains.
What is the Point of Coins or Tokens?
If all this talk of blockchains, consensus algorithms, and dApps has left you feeling confused you aren't alone.
Cryptocurrency is undeniably complex.
What is important to note is that different types of cryptocurrency have different real-world use cases. Ripple (XRP), for example, facilitates cross-border payments. Chainlink (LINK) is a type of cryptocurrency that helps oracles find real-world data to integrate into smart contracts.
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