Different Types of Cryptocurrencies
At one time you could count the number of cryptocurrencies on one hand, but today this is no longer possible as there are approximately 2,957 cryptocurrencies being traded, and this number keeps growing. In this Different Types of Cryptocurrencies 2020 Article I am going to outline the main types of cryptocurrencies, the differences between them, and the pros and cons of each. But before I explain about the top cryptocurrencies, you need to understand what cryptocurrency is.
What is Cryptocurrency?
Cryptocurrency is a digital asset designed to work as a medium of exchange which uses strong cryptography ( the art of writing or solving codes), to secure financial transactions, verify the transfer of assets and control the creation of additional units operating independently without a central bank. People no longer need to trust banks to handle their money and private information, instead transactions will be processed on the blockchain (a shared database).
Three Main Types of Cryptocurrencies
Bitcoin was the first blockchain, after Bitcoin many new blockchains were created called Altcoins. Cardano and Litecoin are examples of Altcoins. The third main type of cryptocurrency is called Tokens/dApps, examples of these include WePower ( WPR), Civic (CVC), and BitDegree (BDG).
What is it?
Bitcoin is a digital currency that you can send to other people. It is a decentralized digital currency, meaning it does not rely on a bank or third party to handle it. Transactions happen directly between users, this is called a peer-to-peer network. Bitcoin is just like the money we use in our bank accounts EUR, JPY, USD etc, but it is digital not physical. This is all possible due to the blockchain, which allows users to send and receive Bitcoin without using a third party organization.
How Bitcoin Works
Whenever someone sends Bitcoin, the transaction is confirmed and then stored on the blockchain. All the information on the blockchain is encrypted, it is visible to the public but only the owner of each Bitcoin which is given a private key can decrypt it.
Bitcoin was created by Satoshi Nakamoto and on the 3rd of January 2009, the Bitcoin Network came into existence. It was revealed that Satoshi Nakamoto was not this persons real name. Till today, no one knows the real name of the creator of Bitcoin. At that time nobody knew that Bitcoin would be the start of a huge technological movement, the beginning of cryptocurrencies.
Altcoins are cryptocurrencies launched after the success of Bitcoin. Generally the majority of Altcoins are just alternate versions of Bitcoin with small changes. However, not all Altcoins are just alternate versions of Bitcoin, some are very different from Bitcoin with different purposes. The term “Altcoins” refers to all cryptocurrencies other than Bitcoin. Some Altcoins use different methods for Bitcoin. Factom is a type of Altcoin that uses Pos (Proof of Stake).
In Pos there are stakers instead of miners. Just like miners, stakers are people that verify transactions for rewards, but instead of racing to verify a block before anyone does, stakers are selected one by one to take their turn. Ethereum was the best known mining based Altcoin as of February 2020. Ethereum and Neo (Altcoin) were designed as huge platforms for building apps on a blockchain. This is the most common way that the new cryptocurrencies are created.
Tokens (for dAPPS)
This type of cryptocurrency is a token. Compared to the other two types of cryptocurrencies dApps is unique, in fact they don’t have their own blockchain, they are used on dApps (Decentralized Applications). These are apps I previously told you about that can be built on blockchains such as NEO and Ethereum and are built to use smart contracts, which is the reason they use tokens.
Their tokens do not represent a physical object such as a Television, car or house. Instead, they can be used to purchase things on dApp or to get certain advantages such as voting fees and discounted fees. Since dApps are built on other blockchains like the NEO and Ethereum blockchain meaning that the transaction fee is paid with NEO or Ethereum and not with the token.
The Top 4 Cryptocurrencies
As i have already covered the topic on Bitcoin, i will jump straight into the pros and cons of Bitcoin.
- Bitcoin is the Biggest Cryptocurrency – Bitcoin is the first cryptocurrency and it currently dominates over 40% of the market.
- Bitcoin is much more recognized – You are able to purchase items using Bitcoin through hundreds of online stores that accept the cryptocurrency.
- There will only be 21 million Bitcoins – Most of there Bitcoins have already been mined, therefore there are currently 17 million Bitcoin and around 4 million are left to be mined. This 21 million cap would make Bitcoins price to increase due to its scarcity.
- People still use Bitcoin for criminal activities – These include things like avoiding taxes. However, the reputation of Bitcoin is improving, fewer cases of illegal criminal exploitation of bitcoin are being prosecuted.
- The fluctuation of Bitcoin is quite high – This means that the price of Bitcoin changes several times a day.
I had mentioned earlier that Ethereum (Ether) is a platform that allows people to build smart contracts, dApps and tokens.
- Its speed – Ethereum’s transactions are processed in a matter of seconds.
- Users of dApps will always depend on Ethereum – dApps run on the Ethereum blockchain and therefore they need Ether to pay for transaction fees on the dApps.
- There are more Etherum coins than Bitcoin. There are almost 100,000,000 Ether coins at the moment and they will never stop being created
Litecoin is very similar to Bitcoin, but it has different features. It was created to improve what Bitcoin had created. Litecoin is becoming more and more popular because it will be the first cryptocurrency ever to use the Lighting Network. The Lightning Network solves a lot of issues for cryptocurrencies such as scalability.
- Litecoin is much cheaper and faster than Bitcoin – Bitcoin transactions can be costly which is pointless to send small amounts. Litecoin is cheaper making it a lot better for small payments.
- Litecoin is only a slight improvement of Bitcoin.
Ripple ( Bankers coin), is a blockchain designed to be used by bankers to make their payments faster.
- Big well respected companies are trusting Ripple. Huge financial organizations have partnered with Ripple.
- Ripple is not decentralized unlike other cryptocurrencies.
China’s Digital Project
China’s Central Bank is on the brink of launching a digital version of the Yuan ( CBDC). The People’s Bank of China plans a virtual Yuan, expecting that it will provide China with greater insight into the financial activities of its residents and hoping that it will decrease the workload at financial institutions.
The digital Yuan will depend on blockchain technology to prevent fraud, related to wiring funds overseas and falsifying records along the supply chain. Unlike digital coins like Bitcoin, the digital Yuan adopts a centralized management system. The digital Yuan will exclusively be held by The Bank of China. However several pre-selected banks will be issued the digital Yuan. The Central Bank will approve and control all transactions made by commercial banks on behalf of their customers.
Today cryptocurrencies have become a global phenomenon known to most people. There are various types of cryptocurrencies, nearly everyday new cryptocurrencies emerge and old ones die. Once cryptocurrencies are widely adopted, they can be the next version of technology in all sectors.
After reading this article on Different Types of Cryptocurrencies 2020, you should be much more familiar with the different types of cryptocurrencies and the most popular ones that exist, including the pros and cons of each. Educate and familiarize yourself with the different types of cryptocurrency, their applications, track records and special features before you choose a cryptocurrency that’s right for you. I personally side with Bitcoin because it leads the crypto space and has stood the test of time.
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