Different Types of Cryptocurrency and How They Work – Forbes Advisor INDIA
Cryptocurrency or digital currency is an alternative form of payment that exists virtually and uses cryptography to secure payments and transactions. Cryptocurrencies have no central or regulatory authority like fiat currencies, instead they use a decentralized peer-to-peer (P2P) network to record transactions and issue new coins in the market.
Cryptocurrencies are based on a distributed public ledger known as blockchain. A blockchain keeps track of all transactions that have been held by the currency owners. These currencies are further stored in digital wallets that consist of private and public keys.
Cryptocurrency got its name because it uses encryption algorithms to verify transactions. The first and largest cryptocurrency is Bitcoin, which was founded in 2009 and is still the most famous today.
Let’s take a look at different types of cryptocurrencies, including Bitcoin, that have held up through steep price rises and falls.
List of different types of cryptocurrencies
Bitcoin
Ticker symbol: BTC
Market value: Over $435 billion
Despite thousands of competitors, Bitcoin – the first and largest cryptocurrency – remains the leading player in terms of volumes and economic value. Bitcoin continues to lead the crypto market in terms of market capitalization, user base and popularity. Launched in 2009 by Satoshi Nakamoto, Bitcoin has reached its highest peak of $68,000 in 2021. Bitcoin supports both smart contracts and DApps due to the major updates like lightning network and taproot update.
Bitcoin is currently trading at $22,950 as of January 2023.
Interesting facts: Bitcoin price is highly volatile. Since its launch in 2009, Bitcoins have risen from $0.07 to an all-time high of $68,521 on November 5, 2021.
Ethereum
Ticker: ETH
Market value: 190 billion dollars
Ethereum is an open source decentralized blockchain with smart contract functionality. Ethereum is the second largest cryptocurrency that has a very strong and dominant position in the crypto market after Bitcoin. Ethereum operates on its blockchain and supports smart contracts that run on its own blockchain and are automatically executed when certain conditions are met. Ether is the cryptocurrency that runs on the Ethereum blockchain.
Launched in 2015, ETH is currently trading around the January 2023 $1,500 levels.
Interesting facts: In 2022, Ethereum switched to proof-of-stake from the proof-of-work model, which is considered one of the biggest transitions in the crypto world. That is significant as it marked a massive reduction on the energy footprint front.
Binance Coin (BNB)
Ticker: GDP
Market value: Over $47 billion
Binance coin is the original coin of the Binance exchange, which is the world’s largest cryptocurrency exchange in the world. BNB was launched in 2018 which is used for multiple purposes such as trading, credit card payments, payment processing, loans and other transfers. To encourage its adoption, Binance exchange transaction fees are lower for users paying in BNB. To make the value stable, Binance destroys or burns a fixed percentage of the coins in circulation.
Binance is currently trading around the January 2023 $300 levels.
Interesting facts: Binance is the largest hub for free crypto and blockchain resources. It launched the Binance Academy in 2018, which also rewards students for improving their knowledge in the blockchain and crypto space.
Tether
Ticker: USDT
Market value: Over $67 billion
USDT is a stablecoin pegged to the US dollar issued by the Hong Kong-based company Tether. It should be noted that Tether is backed by a similar number of US dollars, which means it experiences the same kind of price volatility. As other cryptocurrencies fluctuate in value, tether’s price is usually equivalent to $1.
It does not have its own blockchain; rather, it runs as a second-layer token on top of other multiple blockchains such as Bitcoin, Ethereum, Tron, Algorand, Bitcoin Cash, and OMG, and thus it is secured by their respective hashing algorithms. Tether cannot be mined due to its asset-backed nature, so new Tether is issued to verified users who make fiat currency deposits.
Interesting facts: After the Terra Luna Crash, on May 12, 2022, Tether lost its 1:1 link to the US dollar, dropping to as low as 95 cents. The price of Tether soon recovered to 99 cents, but this event shook the confidence of many cryptocurrency traders.
Cardano
Ticker: ADA
Market value: Over 12 billion dollars
Cardano which is also known as “Ethereum Killer” is widely known in the industry due to its advanced smart contract functionality. It has been able to establish DeFi products that are very similar to Ethereum and also provide solutions for chain interoperability. ADA is the original coin of Cardano co-founded by Charles Hoskinson, one of the first five founders of Ethereum.
As of January 2023, Cardano has the eighth largest market capitalization, and one ADA is valued at around $0.37.
Interesting facts: The Cardano coin is much more environmentally friendly and energy efficient compared to its peers. This is simply because Cardano used an algorithm called “Ouroboros”, which is different from Bitcoin. Ouroboros is actually a very secure and efficient proof-of-stake network protocol.
Solana
Ticker: SUN
Market value: Over $8.8 billion
Solana is a blockchain platform launched in 2017 with the goal of providing rapid execution of decentralized apps (dApps). Like Cardano, Solana is also known as the “Ethereum Killer” capable of performing many more transactions per second (TPS) than Ethereum at lower transaction fees. Solana is designed to scale with industry availability of CPU, memory and network bandwidth.
The cryptocurrency running on the Solana blockchain is called Solana (SOL). As of January 2023, Solana is the eleventh largest cryptocurrency in the world, trading around the $24 levels.
Solana is one of the most competitive Ethereum killers that has the fastest TPS among all the major blockchains. The Solana blockchain runs at a transaction speed of 3000 TPS using a hybrid proof-of-history (PoH) and proof-of-stake (PoS) consensus mechanism.
Polka dot
Ticker: DOT
Market value: Over $7.3 billion
Polkadot is a token that can be easily bought or sold via exchanges. It uses a nominated proof-of-stake mechanism for network security, verification of transactions and distribution of new DOT. DOT is the original cryptocurrency of Polkadot which was launched in 2016. It is a shard blockchain and thus it connects several different chains together under a single network. It allows them to process transactions in parallel and transfer data between chains without sacrificing security. Polkadot is highly scalable as it is able to connect multiple blockchains in a way that was not possible before.
Polkadot is currently trading at $6.41 as of January 22nd.
Interesting facts: Polkadot links a network of heterogeneous blockchain shards called parachains. These chains are connected and secured by the “Relay Chain”. They can also connect to external networks via bridges.
Litecoin
Ticker: LTC
Market value: Over 6 billion dollars
Launched in 2011, Litecoin is known for its simplicity and utility. It is known as a lightweight version of Bitcoin, but works on a completely different algorithm known as Scrypt. Litecoin is mineable and also has a faster transaction processing time compared to Bitcoin. Litecoin launched with 150 pre-mined coins and has a maximum supply of 84 million coins. Like Bitcoin, the Litecoin supply is also designed to decrease over time to preserve the coin’s value.
As of January 2023, Litecoin is trading around the $87.84 levels.
Interesting fact: If Bitcoin is described as digital gold, Litecoin tries to fulfill the role of digital (metal) money. Litecoin has its own blockchain along with the slogan “Silver to Bitcoin’s Gold”. Litecoin is one of the oldest cryptocurrencies and is therefore well established in the crypto world.
Day
Ticker: DAI
Market value: Over 5 billion dollars
Dai is a stable cryptocurrency that runs on the Ethereum blockchain. Like Tether, it is also pegged to the US dollar at a 1:1 ratio. The value of one DAI is the same as the value of one US dollar. DAI is thus a so-called “stablecoin”. Technically, DAI is an Ethereum-based application built on the same blockchain as Ethereum. But unlike Tether, DAI is decentralized, meaning that no centralized authority regulates the supply of new DAIs in circulation. Therefore, it is also widely used in services that offer decentralized loans and interest-bearing funds.
Interesting facts: Stablecoins like Dai try to maintain a value of $1. However, there may be small fluctuations. Dai’s price has crossed $1.10 and dipped below $0.90 for brief periods. The smart contracts that Dai manages help to correct these fluctuations quickly. So if you want to buy Dai when the price is below $1, it means you are getting a good deal.
The sandbox
Ticker: SANDY
Market value: Over 1 billion dollars
The Sandbox is an Ethereum-based virtual game world that enables players to create, build, buy and monetize their virtual assets in the form of a game. It combines the power of decentralized autonomous organizations popularly known as (DAO) and non-fungible tokens (NFT).
As of January 2023, the value of SAND stands at $0.72 with a market value of over one billion dollars.
Interesting fact: Sandbox first began as an open source mobile game in 2012, but without any major blockchain or NFT essentials. Now the latest version of The Sandbox is a face of metaverse and consists of the NFT and Web3 elements.
Throne
Ticker: TRX
Market value: Over 5 billion dollars
Launched in 2017, Tron is a blockchain-based project that works with delegated proof-of-stake consensus mechanisms. It is designed to support dApps and smart contract functionality with the best user experience and design. In 2018, the TRX cryptocurrency gained mainstream attention when the nonprofit Tron Foundation acquired the content sharing platform BitTorrent.
Tron was once an Ethereum-based ERC-20 token, but now it is a separate coin. Its blockchain gets a new block every three seconds, and those validators who added the block are awarded 32 TRX tokens.
At the time of writing, TRX holds 16th ranked among the best cryptocurrencies, with the current price of $0.06246.
Interesting facts: It should be noted that there are no transaction fees for TRX, which is quite a unique and remarkable feature. Moreover, the network is capable of supporting 2000 transactions per second.
Avalanche
Ticker: AVAX
Market value: Over $5 billion
Launched in 2020, Avalanche is known in the crypto space for its fastest TPS and highly scalable blockchain solutions. It has an impressive 4500 TPS, with a block time of one to two seconds. Avalanche uses a proof-of-stake mechanism and a unique three-tier blockchain system that makes it an ideal example for web 3.0. Its native token is AVAX, and is widely used for the platform’s payment, security and connectivity functions.
At the time of writing, AVAX is holding the 17th ranks among the top cryptocurrencies, with the current price of $18.
The bottom line
Over the past decade, several new cryptocurrencies have come and gone, not all of which have survived in this evolving space of the crypto world. The above are the types of digital coins that are an interesting option, not only because they are burgeoning, but these coins have also established and proven their relevance by sticking around in difficult times while others have simply faded away.
But when trading cryptocurrencies, the wise approach is to always take it slow and act sensibly. First test the cryptocurrency – either through buying via exchange or minting via mining and then measure the results. Through proper testing, you will understand the benefits and also get to know whether a particular cryptocurrency is capable of providing long-term rewards or not.
