As the world’s first and most well-known cryptocurrency, Bitcoin has garnered a lot of attention over the years. However, it is far from the only digital currency available. In fact, there are many different types of cryptocurrencies, each with its own advantages and disadvantages.
The recent surge in Bitcoin prices can be attributed to a number of factors, most notably the increasing interest from institutional investors and high-profile individuals like Elon Musk.
With so many options available, it can be difficult to choose the right cryptocurrency for your needs. In this article, we will discuss the various types of cryptocurrency and tokens that might suit your investment goals.
But First, What Is Cryptocurrency?
Cryptocurrency is a digital asset designed to work as a medium of exchange that uses cryptography to secure its transactions, to control the creation of additional units, and to verify the transfer of assets. Cryptocurrencies are decentralized, meaning they are not subject to government or financial institution control.
What Is A Token And How Is It Different From Cryptocurrency?
Tokens are often thought of as cryptocurrencies, but they are actually a different digital asset class. Tokens are units of value that blockchain-based organizations or projects boost on top of existing blockchain networks.
While they often share deep compatibility with the cryptocurrencies of that network, they have different characteristics that make them a unique asset class.
Ultimately, the key difference between cryptocurrencies and tokens is that cryptocurrencies are the native asset of their own blockchain (like BTC or ETH), while tokens are built on top of an existing blockchain (usually Ethereum).
Primary Types Of Cryptocurrency
Here is a list of some of the well-known digital coins and how they work.
Bitcoin
Bitcoin is a decentralized cryptocurrency that uses blockchain technology to facilitate payments and digital transactions. Bitcoin is not controlled by any central bank and all transactions are verified on a public ledger known as the blockchain. Although the BTC price has fluctuated greatly since its inception, it remains one of the most popular methods of payment.
Ethereum
Ethereum is a decentralized open-source blockchain system which casts its own cryptocurrency known as Ether. Ethereum price is what drives the Ethereum market and its Ethereum network. Ethereum is a flexible platform that has attracted a wide range of users, from individual developers to large organizations.
Tether
USDT is a stablecoin that is pegged to the U.S. dollar. This means that the USDT price is equal to the USD price, and there is no volatility in the USDT price. USDT is maintained by a sum of USD in Tether’s reserves, which is equal to the number of USDT in circulation which is available on many exchanges and can be traded for USD or other cryptocurrencies.
USD Coin
USDC is a stablecoin that is pegged to the US dollar and was developed in response to the volatile conditions of the market during the coronavirus pandemic. USDC provides people with a way to hedge against fiat currencies.
USDC is now the second-largest stablecoin by market capitalization which can be used to trade cryptocurrencies on exchanges, to make purchases on merchants that accept USDC or to participate in DeFi protocols.
Terra Classic USD
USTC, formerly known as TerraUSD (UST) is a decentralized, algorithmic stablecoin issued on the Terra Classic blockchain, designed to mirror the US dollar. USTC is an ERC20 token which can be traded on exchanges that support ERC20 tokens and let holders redeem their tokens for US dollars at a 1:1 ratio.
USTC is designed to be more stable than other crypto assets, making it ideal for businesses that need to transact in US dollars.
List of Popular Crypto Tokens
Crypto tokens come in two main varieties: those that represent an investment stake in a company, and those that serve an economic purpose.
Erc-20 Tokens
ERC20 tokens are created on the Ethereum blockchain, and as such, they inherit all of the benefits of Ethereum’s decentralized platform. Thus, ERC20 tokens can take advantage of Ethereum’s existing infrastructure, including its large user base and developer community. One example of ERC-20 token is LUNC crypto.
Utility Tokens
Utility tokens are digital units that provide access to a product or service run or operated by the token issuer. Utility tokens can be used to purchase goods and services, or they can confer certain privileges, such as voting rights, to the holder. It can be traded on decentralized exchanges and transferred between users without the need for a central authority.
DeFi Tokens
DeFi, or decentralized finance, is a term used to describe the shift from traditional financial systems to peer-to-peer finance enabled by blockchain technology. One of the key benefits of DeFi is that it enables users to access financial services without having to go through a traditional financial institution.
Non-fungible Tokens
A non-fungible token, or NFT, is a digital certificate of ownership to a unique asset on the blockchain. NFTs are popularly used to represent works of art, but can also be used to represent a wide variety of assets, from photos and videos to collectables and real estate. The key advantage of using NFTs is that they provide a way to securely and verifiably own digital assets.
To Sum Up
When it comes to cryptocurrency, there are nearly 5,000 different coins in circulation. Cryptocurrency is more widely adopted every day, and as it becomes more mainstream, there will be even more altcoins and tokens to choose from.
Ultimately, understanding these fundamentals will help you decipher which choice is best for you. With this knowledge, you can confidently enter the world of cryptocurrency and make sound investments that will yield a profit in the long run.