What are the 3 different types of cryptocurrencies?
When it comes to cryptocurrency, there are many different options and asset types. It all started with bitcoin, the first decentralized digital currency. Any cryptocurrency other than bitcoin is sometimes called an “altcoin”. There are more than 10,720 altcoins and many different categories, such as stablecoins like USDT or DAIDAI, which have already gained popularity in Asia and Latin America.
Launched by anonymous creator Satoshi Nakamoto in 2009, BitcoinBTC was built as a payment system where value is sent directly from one party to another without an intermediary. It was inspired by a group of privacy activists known as cypherpunks. Today, people may see bitcoin as a way to store value or the cryptocurrency best suited for long-term savings. Nakamoto’s creation was the first successful prototype of a digital currency based on cryptography with no third parties to trust.
Bitcoin is digital gold
Because bitcoin is scarce and suitable for international savings or transfers, some call it digital gold.
In addition, the Bitcoin network uses a proof-of-work mechanism that ensures that someone needs to perform computational work that can be easily verified in order to participate in bitcoin mining. Think of it like mining for gold; this is how new coins are made. According to the network protocol, only 21 million bitcoins can be mined. The main goal of PoW is to secure the public record and prevent spam across the network.
Bitcoin mining is a key element in its security and distribution. The price of bitcoin is determined by supply and demand dynamics, not any particular organization or board of bitcoin miners. Because no one is in charge of all aspects of bitcoin, it is considered the most decentralized cryptocurrency to date.
Stablecoins help crypto users avoid market volatility
Stablecoins are a type of altcoin that typically has a value tied to another asset, such as the dollar. In a market with volatile assets, stablecoins offer (relative) stability because they are tokens that crypto exchanges typically price in a predictable manner. This value could be, for example, one USDT token, the most popular among these products, for one US dollar. TetherUSDT issues this. The stablecoin’s value can be relative to the euro or even commodities such as gold.
There are different stablecoin models, including both algorithmic stablecoins like DAI, backed by loans on the EthereumETH network, and fiat-collateralized stablecoins like USDT and USDCUSDC, issued by Coinbase and Circle. So far, the most popular stablecoins are issued by a central authority with USD-denominated liquid reserves, meaning they are not as decentralized as bitcoin. It is also much more common for people to use stablecoins on crypto exchanges than it is for stablecoins to be used in peer-to-peer transactions or savings. However, in developing countries, many people use stablecoins as a USD proxy due to the growing demand for USD-denominated products.
In the 2022 Geography of Cryptocurrency Report, Chainalysis stated that 34% of Venezuela’s retail P2P transactions were settled through USDT, with Argentina close at 31%. Other countries where stablecoins were popular included Turkey, Lebanon, South Africa, Nigeria and Kenya. Inflation was the leading driver of local stablecoin adoption in all of these examples. Now stablecoins and P2P markets allow people to avoid the challenges of inflating their local currency, all with much less volatility than the bitcoin market.
Altcoins offer business opportunities
Countless blockchain developers and entrepreneurs have created a myriad of cryptocurrencies inspired by bitcoin’s example. The most popular altcoin is ether, the original token of the Ethereum network, which recently switched from bitcoin’s PoW model to a proof-of-stake model instead.
Ethereum was created in 2014 by Vitalik Buterin, a Canadian-Russian developer who was himself an early adopter of Bitcoin. The project has grown to include hundreds of organizations and thousands of individuals who now participate in the Ethereum ecosystem. Most people turn to altcoins for business opportunities, including trading and arbitrage, issuing startup shares, or even managing real assets such as real estate or commodities.
Altcoins are usually not considered rare, at least not yet, because their supply varies based on the organization or individuals that launched the token. And yet Ethereum inspired dozens of altcoin networks suited for business use, such as Tron, AvalancheAVAX, and CardanoADA. There are many different altcoins on the market. Some, like dogecoin, even started as jokes. Nevertheless, among them, there are a number of use cases and tools, which are increasing in influence on the general crypto market and constantly increasing liquidity through crypto exchange platforms.
Whether you want to use cryptocurrency for international transactions, savings that can offer a hedge against traditional markets, or day trading and startup opportunities, you can find the right cryptocurrency to suit your needs. Bitcoin, stablecoins and altcoins are the three main categories of digital assets that cover a wide range of use cases.
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