Types of Cryptocurrency
Cryptocurrencies can be broadly categorised into four types based on their utility. There are more than 15,000 cryptocurrencies today and more are yet to be added. The cryptocurrency market in 2021 is worth over $2.2 trillion, shows the data from Coinmarketcap.com as on December 14.
Based on their utility, we have broadly categorisedcryptocurrencies into four types.
Currency
The world’s first cryptocurrency, bitcoin, was made for this utility. The aim was to make cross-border payment transactions cheaper and faster. Over the years, it has proved to be a store of value. While in 2009, one bitcoin was roughly equal to $1, now the value has grown to $48,000, according to data from coinmarketcap.com.
Asset
Stablecoins can be categorised as assets as the value of these cryptocurrencies is derived from the value of an external asset. For example, USDT derives its value from the US dollar. Gold GLC is tied to the value of gold. Earlier, if investors decided to exit any cryptocurrency, they could exchange it for either any other crypto (which may or may not be preferable) or fiat currency. Now due to the availability of stablecoins, they could choose to remain in the crypto ecosystem by exchanging their cryptocurrency for a more stable crypto while they decide on the next preferable choice.
Object
A lot of buyers think this is where the future of cryptocurrencies lies. These types of cryptocurrencies were created to finance special projects aimed at solving the problems of the world. For example, Siacoin (SIA) aims to solve the problem of expensive cloud storage. As mentioned in their official website, “Sia is the leading decentralized cloud storage platform. No signups, no servers, no trusted third parties. Sia leverages blockchain technology to create a data storage marketplace that is more robust and more affordable than traditional cloud storage providers.”
Meme or Joke Coin
These were created strictly for fun, with no specific goal or purpose, yet they are worth millions now. For example, Dogelon Mars (ELON) was created as a joke. It is supposed to facilitate “InterPlanetary Money Transactions” when it becomes viable. Its market capitalization is over $500 million as on December 13, according to coinmarketcap.com
Some of the best known Cryptocurrenciesare :
1. Bitcoin
– Bitcoin is considered the original crypto, and its launch in 2009 is what started the whole cryptocurrency movement. Bitcoin – and the blockchain technology on which it operates – was invented by an individual or group of individuals operating under the pseudonym Satoshi Nakamoto. Bitcoin was put forward as an alternative to the fiat monetary system. The true identity of Satoshi Nakamoto has never been revealed. In the Bitcoinwhitepaper, Nakamoto argued that a fiat monetary system controlled by central banks and a small number of financial institutions led to a centralised wealth and power and made social and financial mobility difficult. Ordinary people’s savings were eroded through inflation, largely as a result of central banks’ money printing.Bitcoin solved that problem by fixing the number of units ever issued, thereby preventing inflation caused by money printing. Bitcoin’s peer-to-peer blockchain technology meant it didn’t need financial institutions to facilitate transactions and verify ownership.Bitcoin is still by far the most popular cryptocurrency and its price movement has a strong impact on the rest of the crypto market.
2. Ethereum (Ether)-
Ethereum is historically the second most popular cryptocurrency however it is very different from Bitcoin. Ethereum is actually the name of the blockchain platform and Ether is the name of the cryptocurrency. Ethereum is the blockchain platform for ‘smart contracts’.They can also be considered as defined ‘rules’ from which many different applications, or Dapps – decentralised applications – can be created from. EthereumDapps range from games to Initial Coin Offerings (ICOs), which are the cryptocurrency world’s equivalent to crowdfunding or IPOs.While other smart contract platforms have been launched since Ethereum, each claiming to offer more sophisticated blockchain technology, the original blockchain has retained its position as the most utilised.WhileBitcoin is intended as an alternative to traditional fiat currencies, the purpose of Ether (besides being traded as an asset) is to pay for use of the Ethereum platform. It’s known as a ‘utility’ cryptocurrency.
3. Tether (USDT)
-Tether’s price is anchored at $1 per coin. That’s because it is what’s called a stablecoin. Stablecoins are tied to the value of a specific asset, in Tether’s case, the U.S. Dollar. Tether often acts as a medium when traders move from one cryptocurrency to another. Rather than move back to dollars, they use Tether. However, some people are concerned that Tether isn’t safely backed by dollars held in reserve but instead uses a short-term form of unsecured debt.
4. Ripple XRP
-Ripple XRP is another ‘utility’ coin. Its blockchain platform is set up to facilitate cross-border transfers of fiat currency more efficiently. Closely connected to and supported by a number of banks from its beginning, Ripple XRP is often regarded as the ‘establishment’ cryptocurrency. The number of transfer services using Ripple’s platform has gradually grown over the years and there is a genuine possibility that it will become part of the traditional financial system.
5. Litecoin
-Litecoin is another potential fiat alternative and a prominent rival for Bitcoin. Its creators hope Litecoin will eventually be used to pay for everyday goods and services. Litecoin has positioned itself as a more practical and technologically superior alternative to Bitcoin. Litecoin transactions can be confirmed by the P2P network significantly quicker than Bitcoin transactions. In theory, this could make Litecoin more attractive for merchants, but with ‘real-life’ cryptocurrency transactions still hugely limited, Bitcoin’s more established ‘brand’ keeps it well out in front as the fiat alternative cryptocurrency of choice.