There are many types of Crypto in the world and if you are a Crypto newbie it can be overwhelming. In order to help you silence the noise and figure out which Cryptocurrency works best for you, we have put together a two-part blog post that is focused on the different types of Crypto. This article will highlight the three main types of Cryptocurrency, and Part Two will focus on the top Cryptocurrencies. Keep reading to learn more!
The Blockchain brings together the three main types of Cryptocurrency. Bitcoin was the first Blockchain and after Bitcoin, new Blockchains called altcoins were created. NEO, Litecoin and Cardano are examples of these. Lastly came tokens/dApps, the third main type of Cryptocurrencies. Examples of these include Civic (CVC), BitDegree (BDG), and WePower (WPR).
Let’s dive into each Cryptocurrency a little more!
In 2008, the idea of Bitcoin was revealed when Satoshi Nakamoto published the White Paper online. However, it was later revealed that Satoshi Nakamoto was not this person’s real name. Even today, no one knows the real name of the creator of Bitcoin!
At the time, nobody knew that Bitcoin would become what it is today. Nobody knew that it would be the start of a huge technological movement. The beginning of Cryptocurrencies began a new era of technology advancement.
In 2013-2014, Bitcoin grew exponentially, then slowed down a bit. However, in 2017, the market for Bitcoin increased continuously. This time, it went a lot further.
In December 2017, Bitcoin reached a price of $20,000 per Bitcoin. So, anyone holding 50 Bitcoins or more became a millionaire. In January 2015, 50 Bitcoins would have cost you just $10,000. That’s a profit of $990,000!
With Bitcoin, each transaction happens directly between users — a peer-to-peer network. Bitcoin introduced Blockchain technology to allow users to send and receive Bitcoin without using a third party. Since you do not need a third party, you do not need to identify yourself. You can make payments seamlessly without revealing your identity.
Right now, there are more than a thousand altcoins in existence! However, the majority of altcoins are just alternate versions of Bitcoin with minor changes. This is how they got the name ‘altcoins’.
It is important to understand, however, that not all altcoins are alternate versions of Bitcoin. There are some that are extremely different from Bitcoin, and have unique goals/purposes.
Some altcoins use different algorithms for Bitcoin. For example, Factom is an altcoin that uses PoS (Proof-of-Stake). In PoS, there are no miners. Instead, there are stakers.
Stakers are people that verify transactions for rewards, just like miners. But instead of racing to verify a block before anyone else does, they are selected one by one to take their turn. This uses much less electricity because they are not thousands of miners using their electricity to try and verify the same block. Instead, there is just one ‘staker’ per block.
Ethereum and NEO are examples of altcoins that are completely different from Bitcoin. Bitcoin is used as a digital currency, whereas Ethereum and NEO are not. Instead, they serve as huge platforms for building apps on a Blockchain.
On Ethereum and NEO, you can build your own applications. This is the most common way that new Cryptocurrencies are created; they are made on Blockchains that allow app building, like Ethereum and NEO.
This is all possible because Ethereum introduced new technology called a smart contract to the Crypto world when it launched in 2015. A smart contract can automatically execute transactions when certain things happen.
These ‘things’ (also called conditions) are written into the smart contract when it is created. For example, a condition could be something like “WHEN Peter sends 120 Ether into the smart contract, THEN John’s house will be sent to Peter”.
Because of smart contracts, no third party is needed. Bitcoin means there is no third party needed in direct payments, but smart contracts mean there is no third party needed in a majority of things — like the sale of a house, the sale of electricity, or the sale of stock.
You cannot put electricity into a smart contract, so, instead, you put a token into the smart contract that legally represents the electricity. This is one of the best things about smart contracts on Ethereum, NEO, and similar altcoins — you can tokenize real things and put them on the Blockchain.
3. Tokens (for dApps)
The third main type of Cryptocurrency is a token. Compared to the other two main types of Cryptocurrency, they are completely unique in the fact that they do not have their own Blockchain.
Instead, they are used on dApps (decentralized applications). These are the apps that can be built on Blockchains like Ethereum and NEO. The dApps are built to use smart contracts, which is why they use tokens.
Their tokens don’t have to represent a physical thing like electricity or a house, though. They can instead be used to purchase things on the dApp. Either that, or they can be used to get certain advantages — things like discounted fees and voting fees.
Tokens always have a price that they can be sold for, which is why some people buy them. Some people buy tokens to sell them later for a higher price, instead of buying them to use them on the dApp.
Since dApps are built on other Blockchains (like Ethereum and NEO), a token transaction is still verified by the nodes on the Ethereum or NEO Blockchain. This means the transaction fee is still paid with Ether or NEO, and not with the token.
So, to make a transaction on a dApp (i.e. to use a token), you must have some Ether or NEO (or whichever altcoin the dApp is built on) to pay for the transaction fees.
Now that you know the three main types of Cryptocurrency, you must decide which one works best for you! In Part Two of this article, we will highlight the top Cryptocurrencies that are dominating the Crypto world. Stay tuned!