The major types of cryptocurrency: Do you understand?
Cryptocurrencies let you buy goods and services, or trade them for profit. So it is important to understand what cryptocurrency is.
What is Cryptocurrency?
Cryptocurrency is a type of decentralized digital currency. Cryptocurrencies utilize blockchain ledgers to record and validate transactions. The first cryptocurrency was bitcoin, which debuted in 2009, and nearly 900 cryptocurrencies have been created as of 2017, although very few have seen widespread adoption. And in May 2020, there are 5,530 cryptocurrencies.
Thanks to cryptocurrency, people no longer need to trust banks to handle their money and private information (that’s the same for credit card companies, too). We don’t need banks to process our transactions anymore. Instead, transactions in cryptocurrency are processed on the blockchain. The blockchain is a shared database.
There are now more than 5,500 cryptocurrencies in existence, with each falling into one of the three major categories: Bitcoin, altcoins and tokens.
In this article, we collected information and document to explain the differences between these cryptocurrencies. Let’s get started!
The three main types of cryptocurrency.
Bitcoin
Bitcoin (BTC) was the first cryptocurrency to be created and remains the world’s leading cryptocurrency by market cap. Bitcoin is a global peer-to-peer electronic payment system that allows parties to transact directly with each other without the need for an intermediary such as a bank.
The Bitcoin whitepaper, which outlined how this revolutionary new currency would work, was released in 2008, and the Bitcoin network launched in 2009.
Altcoin
Next, we have altcoins. The release of Bitcoin and its open-source code in 2008 paved the way for thousands of other cryptocurrencies to be created. These new coins have been dubbed “alternative coins” or “altcoins” as they are alternatives to Bitcoin.
While some do serve a similar purpose to Bitcoin, other cryptocurrency types such as altcoins actually encompass a wide range of different uses. For example, Ethereum (ETH), the world’s first programmable blockchain, enables developers to build and deploy decentralized applications (DApps) and smart contracts.
Token
The third main type of cryptocurrency is a token - the same kind we’ve just been talking about! Out of the three main types of cryptocurrency, these are the ones I find most interesting. Compared to the other two main types of cryptocurrency, they are completely unique in the fact that they do not have their own blockchain. Tokens are not able to operate independently and are dependent on the network of another cryptocurrency. That means they do not have their own underlying DLT (Distributed Ledger Technology) or blockchain, but instead, are built on top of an existing cryptocurrency’s blockchain.
Token is divided into two categories: security tokens and utility tokens.
Security tokens are created as investments. Token holders are given dividends in the form of additional coins every time the company issuing the tokens earns a profit in the market.
Utility tokens, on the other hand, are not intended to give their holders the ability to control how decisions are made in a company. They merely enable users to interact with a company’s services.
After reading this article, you should be much more familiar with the different types of cryptocurrency that exist!
Thank you so much for reading!
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