What Makes Cryptocurrencies Different From Each Other?
The differences go far beyond just technology, speed, and security. Several crypto projects are proposing solutions that could create a whole new economy.
Cryptocurrencies are part of the new disruptive technologies based on cryptography and decentralized processing. Currently, there are thousands of those cryptocurrencies, and the number is increasing fast over time.
The first and the most important crypto is Bitcoin. It was created in 2009 as an alternative currency to the fiduciary system established so far. Since its creation, Bitcoin has increased substantially in market capitalization and in popularity.
The free access to the disruptive technology of blockchain behind Bitcoin and the growing adoption of this crypto fueled the creation of an entire environment based on cryptography, decentralization, and disintermediation of goods and services.
This resulted in the emergence of numerous cryptocurrencies (or tokens) that are part of projects with distinct and very specific functions.
Those crypto projects can be divided into several categories. Here, nine different types of crypto are listed:
- Store of value
It refers to the most classical kind of crypto. They are issued by a proprietary protocol. It involves blockchain, mining, and predictable supply and distribution.
Those kinds of crypto often have very limited functionality. They don’t do much besides protecting purchasing power and sending that purchasing power to other people without a middleman.
Bitcoin (BTC) and Litecoin (LTC) are two examples of crypto in this category. - Smart contract
They are designed to be programable with less emphasis on storing value.
The concept behind smart contracts is based on the idea of an alternative to the digital and financial infrastructure we use today. This new infrastructure based on smart contracts allows automatic execution of tasks under preestablished conditions in a decentralized way. It means that any contract can be made in this environment without the need for an intermediary, and its execution is automatic.
A combination of multiple smart contracts together is known as a decentralized application (DAP). DAPs can be created as solutions for many kinds of needs such as trading, gambling, lending and etc.
Smart contracts cryptos get their value from their utility as payment for smart contracts and DAPs transactions.
Ether (ETH) and Binance coin (BNB) are two examples of crypto in this category. - Oracle
This kind of crypto makes it possible to bring real-world data to smart contract blockchains. Most of the applications we use today require some sort of real-world data, be it time, price, weather, etc.
The data feeds that oracle cryptos provide are decentralized and this is the main difference when compared to the centralized APIs that are generally used today.
Chain link (LINK) and Band protocol (BAND) are two examples of crypto in this category. - Utility
They are cryptos that are designed for a particular purpose, acting somewhat like a license to use a specific decentralized application. In general, they are created using some platform of smart contracts, like the platform of Ethereum.
Siacoin (SC) and Skycoin (SKY) are two examples of crypto in this category. - Security
Security tokens are security assets in the shape of crypto. Security tokens can be created to represent shares of a company, bonds, etc. Unlike traditional securities where ownership information is usually in a centralized registry, security tokens are decentralized and ownership is vested in the token holder. - Asset-backed
This is the kind of crypto that is backed by physical or traditional market assets such as gold, oil, and even real estate. - Collectibles
This refers to cryptos that due to their own characteristics are collectibles or represent collectible items released in digital form. - Stablecoins
Stablecoins are an especial case of asset-backed crypto, where the asset here is a fiat currency like the dollar, euro, etc.
Tether (USDT) and USD Coin (USDC) are two examples of stablecoins. - Meme Coins
These are tokens that are created without a serious purpose. Its price fluctuates due to herd instinct movements or due to manipulation. It attracts people interested in speculative trading or gambling.
Dogecoin (DOGE) and SHIBA INU(SHIB) are two examples of meme coins.
Cryptocurrencies can represent completely different things with very different intrinsic values. The aspect of decentralization and disintermediation as the base for the crypto environment will affect the whole economy with the promise of a distributed economy that will be stable and efficient as never before.
