CryptoCurrency
Cryptocurrency is an internet-based medium of exchange which uses crypto-graphical functions to conduct financial transactions. Cryptos leverage blockchain technology to gain decentralisation, transparency, and immutability.
The most important feature of a cryptocurrency is that it is not controlled by any central authority: the decentralised nature of the blockchain makes crypto currencies theoretically immune to the old ways of govt control and interference.
Cryptocurrencies can be sent directly between two parties via the use of private and public keys. These transfers can be done with minimal processing fees, allowing users to avoid the steep fees charged by traditional financial institutions.
"There are now more than 3000 cryptocurrencies in existence, with each falling into one of the three major categories: altcoins, tokens, and Bitcoins"
In this article, we will explain the differences between these cryptocurrencies. We will also look at some of the common subtypes used for cryptocurrencies, such as ‘stablecoins’ and ‘privacy coins’.
The three main types of cryptocurrency
Bitcoin
Bitcoin (BTC) was the first cryptocurrency to be created and remains the world’s leading cryptocurrency by market cap. Bitcoin is a global peer-to-peer electronic payment system that allows parties to transact directly with each other without the need for an intermediary or institution such as a government or any bank.
The Bitcoin whitepaper, which outlined how this revolutionary new currency would work, was released in 2008, and the Bitcoin network launched in 2009. Since its launch Bitcoin has experienced no downtime, allowing anyone to transfer value at any time and from anywhere. The transaction time has also improved a lot in recent years.
Bitcoin’s creator goes by the pseudonym Satoshi Nakamoto, their real identity remains unknown to this day. It is also unclear whether Nakamoto represents a single person or a group of individuals who worked on the Bitcoin project.
Bitcoin is often regarded as the digital alternative to both fiat currencies and gold. That is because Bitcoin can be spent and saved just like traditional money, but is also a scarce finite resource and thus good store of value like gold.
Altcoins
The release of Bitcoin and its open-source code in 2008 paved the way for thousands of other cryptocurrencies to be created. These new coins have been dubbed ‘alternative coins’ or ‘altcoins’ as they are alternatives to Bitcoin
While some do serve a similar purpose to Bitcoin, other cryptocurrency types such as altcoins actually encompass a wide range of different uses. For example, Ethereum (ETH), the world’s first programmable blockchain, enables developers to build and deploy decentralised applications (DApps) and smart contracts.
IOTA is specifically designed to be a new data transfer and transaction settlement layer for the machine economy and the Internet of Things (IoT).
IOTA also uses its own proprietary distributed ledger technology called the Tangle.
Litecoin (LTC) is a peer-to-peer currency and global payment network similar to Bitcoin. In fact, Litecoin’s creator Charlie Lee states that his intention was for Litecoin to be a complementary cryptocurrency to Bitcoin.
Like Bitcoin, all altcoins are able to operate independently on their own networks utilising distributed ledger technology (DLT). The most famous and commonly used type of DLT is blockchain technology, which was introduced to the world by Satoshi Nakamoto via Bitcoin. While all coins use DLT, variations in the underlying code of each protocol are what gives altcoins their own unique attributes.
There are at least 856 altcoins in existence according to data from CoinMarketCap, and the top 5 altcoins by market cap are Ethereum, Ripple (XRP), Bitcoin Cash (BCH), Litecoin, and EOS.IO (EOS).
Tokens
Unlike Bitcoin and Altcoins, tokens are not able to operate independently and are dependent on the network of another cryptocurrency. That means they do not have their own underlying DLT or blockchain, but instead, are built on top of an existing cryptocurrency’s blockchain.
Data from CoinMarketCap shows that there are at least 1496 tokens in existence, which are deployed on the blockchain platforms of 24 cryptocurrencies. Some prominent examples of different types of cryptocurrencies that host tokens include:
Ethereum - The Ethereum platform has by far the most tokens deployed on it. Tokens that run on Ethereum include Basic Attention Token (BAT), Chainlink (LINK), Huobi Token (HT), USD Coin (USDC), and hundreds of others.
Omni - Tether (USDT), the leading stablecoin and world’s most traded cryptocurrency, is a token that is deployed on Omni, along with three other tokens.
NEO - NEO is often referred to as the Chinese rival to Ethereum, and as a platform for smart contracts and DApps, it has many tokens deployed on it. Top examples of NEO tokens include Nash Exchange (NEX) and Gas (GAS).
TRON - As a leading platform for DApps, TRON has numerous tokens deployed on it, including BitTorrent Token (BTT), which can be used for faster downloads on the BitTorrent file-sharing protocol.
The top 5 tokens by market cap are Tether, UNUS SED LEO, Chainlink, Huobi Token, and Maker, all of which are deployed on the Ethereum blockchain apart from Tether which takes the top spot.
Tokens are much easier to create as you do not need to build a blockchain from scratch. You may have heard the phrase “tokenise the world,” which refers to the ability for tokens to represent almost any asset.
This is thanks to the use of smart contracts, and we have already seen tokenised versions of stocks, commodities, fiat currencies, other cryptocurrencies, property, and more. And the chances are, we have barely even scratched the surface yet as to what else can be tokenised.
Common terms used to categorise cryptocurrencies
While we are on the topic of different types of cryptocurrency, we may as well look at some of the various subtypes that you will likely come across in the crypto world.
Here are four terms commonly used to categorise cryptocurrencies that have specific characteristics:
History of Cryptocurrency
Then, in early 2009, an anonymous programmer or a group of programmers under an alias Satoshi Nakamoto introduced Bitcoin. Satoshi described it as a ‘peer-to-peer electronic cash system.’ It is completely decentralised, meaning there are no servers involved and no central controlling authority. The concept closely resembles peer-to-peer networks for file sharing
Many people believe that cryptocurrencies are the hottest investment opportunity currently available. Indeed, there are many stories of people becoming millionaires through their Bitcoin investments. Bitcoin is the most recognisable digital currency to date, and just last year one BTC was valued at $800. In November 2017, the price of one Bitcoin exceeded $7,000.
Ethereum, perhaps the second most valued cryptocurrency, has recorded the fastest rise a digital currency ever demonstrated. Since May 2016, its value increased by at least 2,700 percent. When it comes to all cryptocurrencies combined, their market cap soared by more than 10,000 percent since mid-2013.
Legality of Cryptocurrency
As cryptocurrencies are becoming more and more mainstream, law enforcement agencies, tax authorities and legal regulators worldwide are trying to understand the very concept of crypto coins and where exactly do they fit in existing regulations and legal frameworks. With the introduction of Bitcoin, the first ever cryptocurrency, a completely new paradigm was created. Decentralised, self-sustained digital currencies that don’t exist in any physical shape or form and are not controlled by any singular entity were always set to cause an uproar among the regulators.
A lot of concerns have been raised regarding cryptocurrencies’ decentralised nature and their ability to be used almost completely anonymously. The authorities all over the world are worried about the cryptocurrencies’ appeal to the traders of illegal goods and services.
Moreover, they are worried about their use in money laundering and tax evasion schemes. As of November 2017, Bitcoin and other digital currencies are outlawed only in Bangladesh, Bolivia, Ecuador, Kyrgyzstan and Vietnam, with China and Russia being on the verge of banning them as well. Other jurisdictions, however, do not make the usage of cryptocurrencies illegal as of yet, but the laws and regulations can vary drastically depending on the country.
Types of Cryptocurrencies:
You won't be able to count the number of cryptocurrency currently circulating in market. There are numerous organisation and group of people keeps on launching a new Currency every day. Some of the currency that are recognised globally are:
The Crypto's Story
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There are a lot of different options when it comes to buying Bitcoins. For example, there are currently almost 1,800 Bitcoin ATMs in 58 countries. Moreover, you can buy BTC using gift cards, cryptocurrency exchanges, investment trusts and you can even trade face-to-face.
When it comes to other, less popular cryptocurrencies, the buying options aren’t as diverse. However, there are still numerous exchanges where you can acquire various crypto-coins for flat currencies or Bitcoins. Face-to-face trading is also a popular way of acquiring coins. Buying options depend on particular cryptocurrencies, their popularity as well as your location.
Cryptocurrencies are digital, which entails a completely different approach, particularly when it comes to storing it. Technically, you don’t store your units of cryptocurrency; instead it’s the private key that you use to sign for transactions that need to be securely stored.
There are several different types of cryptocurrency wallets that cater for different needs. If your priority is privacy, you might want to opt for a paper or a hardware wallet. Those are the most secure ways of storing your crypto funds. There are also ‘cold’ (offline) wallets that are stored on your hard drive and online wallets, which can either be affiliated with exchanges or with independent platforms.
What can I do with cryptocurrency?
Besides buying and selling cryptocurrency, you can…
Shop: Over 100,000 merchants accept Bitcoin including Microsoft, Overstock, and NewEgg.
Dine out: Worldwide, you can dine in or carry out at thousands of restaurants using Bitcoin or Bitcoin Cash.
Donate to causes: GiveCrypto.org is a nonprofit that distributes cryptocurrency to people living in poverty. The Internet Archive, The Mozilla Foundation, and The Wikimedia Foundation (just to name a few) also all accept donations in Bitcoin.
Gift it: Cryptocurrency makes a great gift for friends and family.
Tip someone: Authors, musicians, and other online content creators sometimes leave Bitcoin addresses or QR codes at the end of their articles. If you like their work, you can give a little crypto as a way of saying thanks.
Travel the world: Because cryptocurrency isn’t tied to a specific country, traveling with crypto can cut down on money exchange fees. There’s already a small but thriving community of self-titled “crypto nomads” who primarily, or in some cases exclusively, spend crypto when they travel.
Is cryptocurrency legal?
Yes, crypto is legal to buy, sell, send, receive, and own in most parts of the world. The full list of countries we support includes the USA, UK, Australia*, Canada*, Singapore*, and the following countries in Europe:
Austria | Czech Republic | Ireland | Monaco | San Marino |
Belgium | Denmark | Italy | Netherlands | Slovakia |
Bulgaria | Finland | Latvia | Norway | Slovenia |
Croatia | Greece | Liechtenstein | Poland | Spain |
Cyprus | Hungary | Malta | Portugal | Sweden |
Switzerland |
In some countries there is still a lot of confusion in trading so countries like Canada, Australia, and Singapore currently allows you to buy crypto but not sell it.
Which cryptocurrency should I buy?
You can buy Bitcoin (BTC), Litecoin (LTC), Ethereum (ETH), Bitcoin Cash (BCH), and Ethereum Classic (ETC). While we can’t recommend one currency over another, we can still share a few approaches that can help you decide which crypto is right for you.
One simple option is buy some of each currency. It’s a straightforward way to get started without playing favourites.
Another good option is to ask yourself what you’re hoping to do with crypto and choose the currency that will help you achieve your goals. For example, if you want to buy a T-shirt with crypto, then Bitcoin might be a good option because it is the most widely accepted cryptocurrency. On the other hand, if you want to play a digital card game, then Ethereum is a popular choice.
How is cryptocurrency different from regular money?
Cryptocurrencies and regular money share some traits — like how you can use them to buy things or how you can transfer them electronically — but they’re also unique in interesting ways. Here are a few highlights.