Cryptocurrencies have gained significant traction as a digital alternative to traditional forms of money. Each cryptocurrency offers its own set of features and functionalities, catering to specific use cases and addressing different challenges. In this write-up, we will embark on an exploration of various types of cryptocurrencies, underlying technologies, and the impact they have on industries worldwide.
While many cryptocurrencies share a blockchain-based infrastructure, there are some striking differences between them. Generally speaking, cryptocurrency can be clustered into two distinct categories: coins and tokens.
Coins and altcoins
A coin is any cryptocurrency that uses its own independent blockchain. For example, Bitcoin is considered a “coin” because it runs on its own infrastructure. Similarly, Ether is operated via the Ethereum blockchain.
The term “altcoin” is used to refer to any coin other than Bitcoin. Many altcoins operate similarly to Bitcoin. However, others, such as Dogecoin, are rather different. Doge, for instance, offers an unlimited supply of coins compared to Bitcoin’s cap of 21 million coins.
Like coins, tokens are also digital assets that can be bought and sold. However, tokens are a non-native asset, meaning that they use another blockchain’s infrastructure. These include Tether, which is hosted on the Ethereum blockchain, and others, including Chainlink, Uniswap, and Polygon.
Popular types of cryptocurrency and how they work
1. Bitcoin (BTC)
Bitcoin was the world’s first cryptocurrency, with its origins dating back to a white paper published in 2008, and remains the best-known type of crypto. It functions on its own blockchain, with transactions verified (and new Bitcoins created, up to a fixed cap) by an army of decentralized miners. In January 2022, Bitcoin was the cryptocurrency with the largest market cap, at US$896 billion.
2. Ether (ETH)
Ether is the cryptocurrency that runs on the Ethereum blockchain. Like Bitcoin, Ether operates on its own blockchain—but unlike Bitcoin, Ether is uncapped, meaning that an infinite number of coins can theoretically be created. Ethereum also supports smart contracts, which are programs that run on the Ethereum blockchain and are executed automatically when certain conditions are met.
3. Binance Coin (BNB)
Binance Coin is native to Binance, the world’s largest cryptocurrency exchange as of 2021. Transaction fees for this exchange are reduced for users who choose to pay in BNB. This has encouraged the adoption of Binance Coin, making it one of the largest cryptocoins in the market. To ensure its value remains stable, Binance destroys or “burns” a fixed percentage of the coins in circulation.
4. Tether (USDT)
Tether is a type of stablecoin, designed to have a less-volatile price by being linked to an external asset. In this case, each coin is backed by an equivalent number of US dollars, which keeps it from experiencing the same kind of pricing volatility that other cryptocurrencies face. There is however, some debate about whether it truly is fully backed by the dollar.
5. Solana (SOL)
SOL is the native coin of the Solana platform, which functions on a blockchain system, just like Ethereum and Bitcoin. Solana’s network can perform a whopping 50,000 transactions per second, making this platform especially attractive to investors looking to trade quickly.
6. XRP (XRP)
XRP, which runs on the Ripple network, has been described as a “cryptocurrency for banks” because it’s tailor-made to serve the needs of the financial services industry. Conceived as a way to facilitate international payments, XRP acts as a bridge between two different currencies to offer cheaper, quicker global transfers.
7. Cardano (ADA)
ADA is the native coin of the Cardano blockchain. Dubbed a “third-generation” cryptocurrency, Cardano splits its blockchain into two layers to increase transaction speeds and implements native tokens to ensure a better experience for ADA holders.
8. USD Coin (USDC)
Much like Tether, USD Coin is a stablecoin connected to the US dollar that cannot be mined. However, unlike Tether, USD Coin has more transparent funding and better auditing processes. The aim is to remove some of the risk associated with crypto, as users should always be able to withdraw their coins and receive the corresponding amount of cash in exchange.
9. Dogecoin (DOGE)
Originally created to poke fun at Bitcoin, Dogecoin has now become one of the most valuable cryptocurrencies in circulation. Founded in 2013 and inspired by a dog meme from the same year, Dogecoin first made a name for itself in 2021, and now has a market worth of 8.4 billion euro, as of October, 2022. Dogecoin is a Litecoin fork, and like Bitcoin, is based on blockchain technology. However, unlike Bitcoin, it has no set limit of available coins. On the one hand, this enables people all over the world to mine unlimited Dogecoins. However, there is a higher risk that the infinite amount of this currency could cause its value to decline rapidly.
10. Avalanche (AVAX)
AVAX is the native coin of the Avalanche platform, which bills itself as the “fastest smart contracts platform.” AVAX is, among other things, used to pay transaction fees on the Avalanche platform. The Avalanche platform allows developers to create new custom blockchains on Avalanche as “subnets.” Avalanche’s blockchain is compatible with Solidity, the Ethereum blockchain’s programming language, which makes it easier for Ethereum developers to build subnets on Avalanche.
As the world embraces the digital revolution, understanding the diverse types of cryptocurrencies becomes essential for professionals and enthusiasts alike. By exploring the unique features and use cases of different cryptocurrencies, we can unlock the potential of decentralized finance, digital asset ownership, and transformative applications across industries. Connect with me on LinkedIn to stay updated with the latest developments and insights in the ever-evolving world of cryptocurrencies.