Different Types of Cryptocurrencies Explained
In 2017, cryptocurrency and Bitcoin turned into buzzwords and have drawn the attention of millions of people around the world – both finance-savvy and laymen. Today, Bitcoin is lost on very few: young traders switch their preference from fiat currency to the virtual coin, and its market capitalization has reached $277,633,974,104!
However, the creation of mysterious Satoshi Nakamoto, Bitcoin is not the only player on the market – there are thousands of other cryptocurrencies popping up around. In this guide, youll learn about different types of cryptocurrency and understand the nature of this phenomenon.
What is Cryptocurrency?
First and foremost, we need to clear up the difference between a virtual currency and a cryptocurrency. A virtual currency serves as a digital analog of any fiat currency (USD, EUR, or RUB) and holds the same value: it can be bought for the same amount of real money, converted into other currency, and used to pay for goods and services online.
Turnover of virtual currency is organized with the help of online platforms: Skrill, Webmoney, PayPal, QIWI, and others. The history of cryptocurrency started from Bitcoin when the technology underlying it enabled peer-to-peer money transfer without trust to any third party. Bitcoin is an open-source initiative, which means it can be developed by any person: that what people did and used to create alternative cryptocurrencies – altcoins.
When we talk about money of different types, cryptocurrency is the only financial asset that does not belong to any government or financial organization. Thanks to blockchain technology, the information about the coin and transfers is anonymous and encrypted, the data is decentralized, and no third party can control the currency. Due to these facts, the global financial sphere is undergoing earthshaking changes: cryptocurrency can break down the authority of governments and simply replace the fiat currencies.
Basic Categories of Cryptocurrencies
There are three basic types of cryptocurrency:
Traditional cryptocurrencies like Bitcoin just serve as a unit of exchange. Like usual fiat currencies, they have a limited inherent value that is attributed to people using it – its price can rise and drop.
Utility cryptocurrencies serve to build an infrastructure on the top of it. Ethereum is a good case in point: it allows developers to generate Smart Contracts, i.e. the code that can execute coin transactions without middlemen and third-party organizations. Smart contracts can drive decentralized applications and be applied in literally any sphere where communication without trust is required. Another similar cryptocurrency is Filecoin: it serves to create a decentralized data storage system.
Tokens (app or platform cryptocurrencies). This is a cryptocurrency equivalent of an application or a platform that is generated on top of a utility cryptocurrency like Ethereum. Tokens are typically used in the frames of some certain infrastructure for purchases or getting some certain rewards. For instance, Shivom is a decentralized genome data storage platform built on the top of Ethereum: it allows users to share their ...