Bitcoin’s launch in 2009 was the world’s introduction to cryptocurrency. Since then, the blockchain technology responsible for Bitcoin’s inception has evolved to produce thousands of cryptocurrencies.
There are different types of cryptocurrencies, each having its own unique quality. With the misconception that they are all the same, it is vital to know the differences among them all. This basic knowledge can guide you in navigating the crypto world and prevent you from making inevitable mistakes.
On that note, let’s take a comprehensive look at how the different types of cryptocurrency work.
Coins are a series of codes built on a unique blockchain to be an asset or concept, they serve as the native token for that network, and have different use cases and prices.
Coins are primarily created through mining using the right mining equipment because they are created on a distinct blockchain. Mining is a process in which computers solve complex cryptographic puzzles as a means of verifying transactions done on the blockchain.
Even though coins are native tokens and can be used to pay gas fees, you can use other types of cryptocurrency to cover the gas fee.
Bitcoin is usually differentiated from the rest. However, coins are further divided into two subtypes; altcoins and stablecoins.
Altcoin— derived from the phrase alternative coin— is a term used to refer to any cryptocurrency that is not Bitcoin.
Ethereum was one of the first altcoins that were not forked from Bitcoin. In contrast, coins like Litecoin and Bitcoin Cash are all Bitcoin forks.
Stablecoins, as the name implies, are cryptocurrencies created to provide stable value. They were created because traditional coins like Bitcoin are known to be volatile, thus being high-risk.
Stablecoins are built on existing blockchains and may be exchanged for fiat currencies. In the crypto market, they are used for everyday trading to avoid price swings.
For instance, If you want to buy cryptocurrency to trade, you can purchase a stablecoin like USDT, using it as a launch pad to trade other cryptocurrencies. This way, you can protect against volatility without converting your holdings to fiat currency.
The stability of stablecoins lies in their value pegged to physical assets— gold, oil, fiat— stored in reserves. Examples of stablecoins are Tether, Gemini, and Paxos.
Think of tokens as tickets at the amusement park. They represent an asset (used to enter rides) but can only be used in the park that issued them.
They digitally represent the assets or utility of a blockchain network. While you can group tokens under altcoins, they are different from other coins because they are not native to the blockchain in which they were created.
Tokens are fungible, tradeable, and can be used to validate smart contracts. They can also operate without a third-party platform because they are encoded in self-executing computer programs.
They’re usually distributed through Initial Coin Offerings (ICOs), though they can also be issued without.
There are also different types of tokens, classified according to their uses. Examples of tokens are Monero and Golem.
How To Invest in Cryptocurrency
Before you start filling up your portfolio with the different types of cryptocurrency, you first need to know how to invest in crypto correctly.
The first step to investing in cryptocurrency is to choose a broker. Your broker is who you meet to buy cryptocurrency, they help you convert your fiat currency into cryptocurrency.
Make sure you pick a broker that makes it easy for you to purchase crypto For instance, your broker can let you purchase crypto with your debit or credit card. After you choose a broker, create and verify your account. Then fund your account with the amount you intend to invest.
Once your account is funded, you are now ready to stockpile whatever type of crypto you want to own.