A lot of people want to enter the blockchain industry and invest in this new opportunity but they don’t know about the different types of cryptocurrency without the knowledge of the industry, how it works, and what is it, it discourages people to move further.
What is a Cryptocurrency?
A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers. A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation.
Different Types of cryptocurrency
A lot of people use the word “crypto”, “coins” or “tokens” interchangeably as a general term. They are neither wrong nor right but those terms fall into a general category.
They usually fall into two major categories but we will get more in-depth about them next.
The two major categories are:
Altcoins: Coins, which can include Bitcoin and altcoins (non-Bitcoin cryptocurrencies)
Tokens: which are programmable assets that live within the blockchain of a given platform.
Blockchain Economy: also known as blockchain platforms take the functionality of blockchain technology further than just payments.
Altcoins is a shortened version of “Alternative Coins” or “Alternative to Bitcoin”. They are similar to Bitcoin but might have different features, different fees, etc… It also depends on what chain they build the altcoin like on the Elrond infrastructure, Ethereum, Binance Smart Chain, and so on. Some altcoins examples are Hi Dollar, Shiba, Dogecoin Litecoin, etc…
The ones mentioned above are currencies for payment. There are other cryptos out there that are stable. They are backed by real assets like gold, fiat, or other cryptocurrencies.
The stable coins purpose is to protect against the value differences generated by the volatility of the crypto industry. It is also very useful for business owners when they sell a product, the price or income won’t change by using a stable coin.
Some examples of these coins are: USD Coin (USDC), Paxos (PAX), Gemini (GUSD), TrueUSD (TUSD), Tether (USDT), Dai (DAI), etc.
A token differs from a coin in the way it’s constructed within the blockchain of an existing coin like Elrond, Bitcoin, or Ethereum. When we talk about tokens, we talk about crypto that haves a utility. They fall into two categories, Utility and Security tokens.
A Utility Token represents digital units of value on the blockchain. The asset represents a certain level of access to a product or service which the holder can gain by redeeming it.
Typically, a startup will develop its product or service and launch an ICO (Initial Coin Offering). During the ICO, the company sells utility tokens. Investors can buy these tokens and use them as a means of payment on the platform developed by the issuing company. Think of it as a crowdfunding campaign.
A security token is a peripheral device used to gain access to an electronically restricted resource. The token is used in addition to or in place of a password. It acts like an electronic key to access something.
A security token can also be simply a digital tokenized share – typically a share of a business, but also often used for real estate and other alternative asset classes.
An example of this can be KuCoin. By holding at least 6 coins, you will receive “dividends”. They share 50% of their fees from transactions with all the Token holders. The token represents the stock of the exchange.
Think about the different infrastructures like Ethereum, Binance Smart Chain, Elrond, and so on. Those are blockchain infrastructures that other people can build Tokens and Coins on top of it. They have their own native token like Eth, BNB, and Egld which are used as a native method of payment and as a guarantee for the validators. For the Elrond infrastructure, to have your own node to validate transactions and receive a fee for validation (gas fee), they require a minimum of 2500 Egld to be locked for the guarantee.