Types of Cryptocurrencies – What are They and How Do They Differ?

Today, cryptocurrencies have become a fairly popular type of virtual asset. They can differ in their characteristics and functions. And anyone who wants to become a full-fledged participant of this market should understand the different types of cryptocurrencies and their features.

What is cryptocurrency

Cryptocurrency is a special form of electronic money that is not stored in a centralized account, but in the blockchain network.

Blockchain is a virtual database that records information about all transactions and how many coins are stored in each account. This technology provides the ability to transfer assets between users, while acting as an indisputable guarantee of ownership of those assets.

Special wallets are used to store and transfer digital money between users. They provide access to a virtual account through two sets of codes – a public and a private key. They are used to create and sign transactions that are conducted on the blockchain.

Because of its characteristics, cryptocurrency has become a popular tool for exchange with almost no restrictions. Most cryptocurrencies are open source, allowing the creation of new virtual assets based on them.

And today, every user can find many ways to make money from cryptocurrencies, as well as to preserve and potentially increase their capital by investing in these assets.

Types of cryptocurrencies

All cryptocurrency assets can be divided into different categories. Bitcoin is the first cryptocurrency, so it has the status of a separate asset outside of the categories. The rest of the blockchain projects can be divided into several types.

Altcoins

These are altcoins – any cryptocurrency with its own blockchain (except bitcoin). Some of them are similar to bitcoin. Others are focused on introducing and using new tools and expanding capabilities.

By modifying the open source VTC, altcoin developers can speed up transactions, optimize the mining process, create various automated contracts, and form the basis for crypto-applications.

Tokens

Act as digital assets, but do not have their own blockchain like standard cryptocurrency. Instead of being mined, tokens are immediately issued in full issue. These assets are created by various companies in order to raise funds for the development of their projects or to make products work. Investors, in turn, receive guarantees that the company will fulfill its obligations to them.

Stablecoins

Digital coins whose price is tied to tangible assets – dollars, gold, oil.

The rate of bitcoin and other similar cryptocurrencies changes throughout the day, week, and month. The value of stablocks, on the other hand, is extremely stable. Fluctuations in price, of course, can be, but they are much smaller than those of cryptocurrencies. Stablecoins are suitable for those who intend to transfer their savings into digital assets with minimal risks.

Keep in mind that these terms can have different meanings depending on the context. For example, the word “cryptocurrency” can also mean altcoin, token, and seblecoin. And stabelcoin is, technically speaking, a type of token.

As the cryptocurrency industry has evolved, new technologies have begun to emerge and are rapidly gaining popularity.

NFT

This is how non-fungible tokens are referred to. They were created to transfer the rights to own unique assets into blockchain. For example, antiques, works of art, 3-D models, gaming items, and more. Each token is unique and cannot be replaced by another. NFTs are particularly popular in the collector community.

DeFi

Decentralized finance services (Decentralized Finance) are not individual cryptocurrencies, but rather comprehensive platforms that can combine different types of digital assets and their functions. Some experts believe that such projects revitalize the cryptocurrency segment.

The main feature of such services is that their users can provide and receive various services directly, without the involvement of intermediaries. In this case, all calculations are carried out in a reliable decentralized network.

One example is ETHMakerDAO, a decentralized lending protocol. Its main goal is to become a more convenient and reliable alternative to banking services.

Each type of digital money and services can be useful for different tasks.