Types of Cryptocurrency

Types of Cryptocurrency

Run the Chain’s Crypto Classroom is a series of blog entries that help you learn (and refresh) your knowledge on everything crypto. There are many different types of cryptocurrency to choose from and invest in, all having distinct use cases.

Users often use crypto assets such as coins to invest, and tokens to support various crypto projects. Depending on what you’re aiming to do with crypto on the metaverse: whether to invest, to game or to be part of a community, you will always find cryptocurrency useful. 

FYI: Crypto is a catch-all umbrella term referring to cryptocurrency and the activities that arise from it.

In general, cryptocurrencies are into two categories:

Coins, such as Bitcoin and altcoins (non-Bitcoin cryptocurrencies), and Tokens, such as NFTs, are digital assets that exist on a blockchain containing programmed metadata. Often, these tokens allow for membership perks to any crypto project. We’ll cover more of this later in this article.

Summarily, coins have more use potential, whereas tokens are, for the most part, specialized for specific purposes. Cryptocurrency in its first form, Bitcoin, served as an alternative to regulated currency, free from transaction delays and service fees. 

What’s the deal with Bitcoin?

Bitcoin is a cryptocurrency which uses proof-of-work (PoW) consensus to validate and secure transactions.

In Bitcoin’s peer-to-peer (P2P) verification system, validators “mine” or generate Bitcoin by using powerful computers to solve complex algorithms. This P2P system in its first incarnation is somewhat difficult and time-consuming. 

As blockchain technology develops, alternatives to Bitcoin becomes a necessity especially to those concerned about its ecological impact. This paved the way for other existing blockchains today. Despite its limitations, Bitcoin has been around for more than ten years, and so far, there has been zero network hack, making it the most secure blockchain network out there.

What are some notable altcoins?

Developers design cryptocurrencies for explicit purposes which makes each distinct with particular users across the globe. Here are some of the more popular cryptocurrencies:

Ethereum (ETH) is a programmable blockchain network for users to monetize content creation and publishing online. Network users also use applications, or dApps, made by members of the Ethereum community to extend Ethereum’s range of use. Not only that, most NFT projects available today are launching on Ethereum.

Solana (SOL) is popular with those involved in decentralized finance (DeFi) as it offers generous staking awards. Considered ETH’s competitor, SOL supports dApps and has seen NFTs on its networks. SOL is a more affordable alternative to ETH.

Polkadot (DOT) is a parachain – designed to be a more flexible blockchain to increase user experience while solving existing limitations of many blockchains. 

Stablecoins

The introduction of cryptocurrencies has also allowed for increased financial mobility thanks to stablecoins. 

Stablecoins are a form of cryptocurrency with their value pegged to another asset like fiat currency, gold, or other crypto assets.

Popular stablecoins like USDC, tether (USDT), Binance USD (BUSD) and are all pegged to the US Dollar.

It’s worth noting that stablecoins are not decentralized. This means that there is already an established value for a stablecoin determined by a central authority. They are, therefore, less volatile and wholly based on a principle of trust between their reserves and their users. 

Altcoins versus Tokens

Tokens are a slightly more specific version of cryptocurrency, as they represent support or a stake in a crypto project and as reward for participants. 

Tokens are often distributed through ICOs, or Initial Coin Offerings, as crypto projects are launched to advance and grow the blockchain to generate more value. 

Utility and Governance Tokens

Utility Tokens function for specific uses within a particular crypto platform or ecosystem. These tokens can also be given through ICOs, or as rewards for using a crypto project’s service or platform. Basic Attention Token (BAT), Golem (GLM), and Refinable (FINE) are some of the various utility tokens out there.

Governance Tokens allow crypto users across a blockchain to act as stakeholders to collaborate on administering a platform or a system. They’re tokens that represent fractions of any valuable asset. So investors are assured that they have a stake in the ownership of tokens and decisions on a network, typically described as a Decentralized Autonomous Organization (DAO). Furthermore all users, as stakeholders, participate in decision-making processes to fuel blockchain-based voting systems. Examples of governance tokens include MakerDAO (MKR) and Friends with Benefits (FWB).

Decentralized Finance Tokens or DeFi tokens help for easy swap between cryptocurrencies. Through applications run on the blockchain with smart contracts, advanced trading happens with DeFi Tokens as users can trade, loan, and use it to diversify their investment portfolio. Popular DeFi tokens include Uniswap (UNI), Curve (CRV), and Synchrony (SCY).

Hybrid Tokens are tokens that have multiple focus points in their use cases. Aave (AAVE) is a DeFi-Governance token that creates lending pools in investment strategies and can be staked. Chainlink (LINK) is a DeFi-Utility token for paying for services on its network to gain access to real-world data.

Wrap Up

Cryptocurrency itself extends beyond “in a nutshell” explanation. However, the possibilities of getting into crypto are endless and are rewarding: from what you participate in, what you stake in, and what you believe in.

Next up, we’ll be covering more on Bitcoin, the cryptocurrency’s point of genesis. Until next time! 🏃‍♂️🔗

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