Understanding The Different Types of Cryptocurrency

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Introduction

Since the dawn of the crypto market, a bunch of different opportunities have been presented to the final investor; these opportunities might be a rollercoaster ride, according to some, because in some instances, these opportunities were booming with business and prosperity, but in others, these were not much of a hoot. The crypto market is a very strange financial market for sure because of the fact that it enjoys extreme volatility that many other financial markets out there don’t.

It is true, however, that stock and forex markets do have their own tendency and inclination towards volatility, but these are not as volatile as the crypto market is. There are a bunch of products to select from when it comes to investment within the crypto market; this is true that many people and corporations over the years have managed to make 10, 20, or even 100 times return on their original investment while at other instances people have run into elaborative scams and other such schemes losing their fortunes and in worse possible scenarios their life savings as well.

Exchange-traded funds might not be the direct offering of the crypto market as these are inclined more toward stock markets; these provide investors with a kind of indirect approach to cryptocurrencies into a fund-like incentive.

What people do here is that they are actually buying shares of a fund that directly collaborates or invests its money into cryptocurrencies, thus providing people with indirect exposure to the crypto market but the catch here is that this mitigates the overwhelming propagation of volatility and therefore is considered much safer as compared to investing directly into the crypto market.

Other than exchange-traded funds, you have got non-fungible tokens which are the depiction of digital art that resides on blockchain technology and has been tokenized into hundreds or thousands of different tokens which are sold individually once again on a blockchain environment. Non-fungible tokens have had a bad experience in the past as these completely stumbled into the ground, and then from there on, these have managed to rise once again.

Investors did lose their interest in non-fungible tokens completely, but with the launch of metaverse and web 3.0, the non-fungible tokens have seen a revival of interest from individual and corporate investors. Other than that, you have got mining pools which are like your saving accounts in which you deposit some of your cryptocurrencies for the sake of earning rewards from the system in the form of the crypto that you just deposited.

The catch here is that whatever cryptocurrency you have deposited or in what specific volume, you would not be available to withdraw it for a dedicated period of time which means that that particular volume of crypto is now committed to the mining pool, and you will continue to earn rewards for your participation in that specific capacity, but you won’t be able to touch your crypto at all.

Once that time period has passed, you can request the release of your crypto, which was earlier committed, or you can continue to earn rewards by extending the commitment period from your end.

Last but not least, you have got cryptocurrencies themselves; there are a bunch of tokens out there that you need to understand better if you want to gain some exposure to the crypto market. There are literally thousands of different cryptocurrencies out there having their own blockchain environments and consensus protocols in which these dedicated cryptocurrencies work.

The first and the flagship cryptocurrency of the crypto market is Bitcoin which launched back in 2009, and since then, it has enjoyed profound interest from investors all over the globe; not only this, but the price action is being continually sustained.

It has reached several all-time highs over the years, and sure there have been some tremendous price dumps over the years, but Bitcoin has managed to protect itself from immense volatility and has always rebounded in the face of cruel market cycles.

Other than Bitcoin, plenty of altcoins have managed to shine on the horizon, and these make up almost 90% of the total trading volume of the crypto market, but when it comes to the total value or market capitalization of the crypto market, then Bitcoin still has the upper hand, it might almost sound a bit unnatural for one cryptocurrency to have much higher stakes in a financial market, but it is the truth indeed.

Anyhow if you want to become a successful crypto trader and want to explore all the relative opportunities that the crypto market has to offer, then you must study all of these cryptocurrencies and develop a basic understanding of each and every one. This article shall help you to do just that; here, you will be able to understand and explore multiple types of tokens or security metrics of the crypto market, which will lend a deeper understanding of how this amazing market infrastructure works.

Crypto Coins

Crypto coins actually refer to the cryptocurrencies that run on their native blockchain systems. Each and every one of the crypto coins out there might serve as the native token for their dedicated blockchain, which means that each crypto project has validated and nominated one such crypto to be their ambassador both within their blockchain systems and the outside.

Each crypto coin enjoys its own relative infrastructure, which is independent of the others, which means that a crypto project can sustain its operation without additional help from other blockchain metrics.

Each of these crypto coins can be mined in their own capacity and would have the same features as the traditional money that you approach, hand over and utilize in the world as the centralized or fiat currencies of the world. Take Bitcoin, for example; it is the first and foremost crypto token to have ever been minted with a sole purpose in mind which was to replace traditional money and transform the world of finance towards a more decentralized approach. Bitcoin can be used as a store of value but also as a mode of payment.

Any other type of tokens that are not primarily Bitcoin is referred to as altcoins; this means alternative crypto tokens to the Bitcoin token, which was the flagship cryptocurrency of the crypto world. It means that no matter what the token is, if it is not Bitcoin, then it is classified as an altcoin which means an alternative to Bitcoin as has been established earlier, Ether, XRP, BNB, and many other such tokens that are potentially in hundreds would be referred to as altcoins.

It might either be a coin or a token, depending on its functionality, but the based categorization of being an altcoin would remain in effect for that particular cryptocurrency.

Different Types of Altcoins

There is only one Bitcoin token which is also termed the flagship cryptocurrency of the crypto world, which means that every other token out there is an altcoin. Altcoins are potentially 100 or even thousands in number which means that every project that is introduced within the crypto world as an independent ICO or some other narrative of crypto offering is an altcoin. These altcoins potentially have different purposes and work with different consensus protocols out there, establishing their working and sustaining their operation in real-time.

One thing that is relevant with all the altcoins and even Bitcoin, for that matter, is the fundamental principles of blockchain technology; all these tokens are decentralized in nature, which means that they don’t enjoy a centralized command or body which is in charge of making decisions on behalf of the users of the token.

This type of functionality is what discerns these tokens from the currencies of the centralized world. These tokens can ultimately be divided into categories or groups; if you may, based on their functionalities and the protocols to which they adhere for the sake of sustaining their operations, these include stablecoins, privacy coins, and meme coins.

These basic categories might define or cover a wide array of crypto tokens out there, but there are still a few of them which do not sit in any of these mentioned categories because these either have a deviated approach from the proposed categories, or their use case is not completely defined by the developers yet.

Another interesting angle that you can fit into this context is the fact that most of these altcoins that can’t fit into any of these categories have direct or indirect affiliation with web 3.0 and the prospect of a metaverse which is why these can’t fit actually into any of these categories but have their own use cases and operations.

Anyhow, to be able to work with these cryptocurrencies, whether Bitcoin or one of these altcoins, it is important to have a deeper dive into their functioning and understanding of the categories to which these originally belong.

Below you will find all the information you would ever require on altcoins belonging to these three definitive categories, how they were categorized into these particular elements and what to expect from each and every category in itself;

Stablecoins

Stablecoins are actually the hybrid approach that has been adopted in the past to cover the factor of the crypto market and the consistency that is provided or brought to the table by Fiat currencies. If you may, stablecoins enjoy these security metrics of crypto tokens or blockchain technology while at the same time being extremely stable in their price action, just as any Fiat currency out there would.

Their overall value remains tied to the assets that might be more or less stable on their own this kind of puts the mind of the investor at ease putting large sums of money into such assets. You can think of stablecoins just as simple commodities out there like gold, platinum, or any other metal, for example, but at the same time, these are just like any other cryptocurrency on the market.

This hybrid approach allows stable coins to behave in a perfect fashion and sustain their price action over a particular period of time. These cryptocurrencies have a stable overall financial value and, for these reasons alone, are extremely popular on cryptos exchanges. These are going to work as a substitute for a dedicated Fiat currency and have their value pegged into one of it, such as the euro or dollar.

Unfortunately, traders are not able to trade or convert their cryptocurrencies into Fiat currencies correctly over a crypto exchange; instead, they can trade their cryptocurrencies into stablecoins which are also resistant to the aspects of volatility just as any other Fiat currency out there.

These stablecoins can actually help the traders to open multiple positions at the same time and to see it through that these positions remain open for good because of less volatility these assets experience. The best example of some of the best stablecoins out there includes USDT, USDC, and many others like these.

There is one consistent factor with all of them, and that is the fact that all of these are built on dedicated blockchain networks, as told earlier, enjoying the extreme security metrics of the crypto world while at the same remaining resistant and sustaining their value just as a Fiat currency out there would.

Privacy Coins

These are the crypto coins that have features such as anonymity and privacy subjected to their very core, and also these aspects are the top priority for these particular coins. These coins have the capabilities within their blockchain infrastructure to actually hide transfer data and make sure that each and every address used to perform a transaction remains anonymous through and through. Not only this, but the address of the sender and receiver, along with their identities and the wallet address, would also remain completely off the grid.

Meme Coins

As the name suggests, these cryptocurrencies were created entirely as a joke in the first place and have become Internet sensations because of their jolly nature and theme intertwined with decentralization. These are some of the riskiest cryptocurrencies out there because they don’t have much intrinsic value; think of something that was created entirely as a joke in the first place and its applications in the harsh and arid world of finance? It doesn’t give you much to go around.

Crypto Tokens

These are the cryptocurrencies that are actually present in their particular blockchain environments, and they already have their own native currencies to begin with. Ether could be considered the native cryptocurrency of the Ethereum blockchain; similarly, XRP is the native crypto for Ripple, and so on so. Ether is also in charge of working as a token that can be chipped in by the user for the sake of paying for their transactions and the network throughput that they are using from the Ether blockchain.

Tokens have extreme use cases as compared to coins because coins are only used for payment and investment purposes, whereas tokens have more innate working and use cases. These tokens could work as decision-making prospects, used for staking purposes, validation of transactions, and providing ownership for a dedicated asset, product, or service to the intended user. Based on most of their working and infrastructure, these are further divided into various categories, and some of these are as follows;

Utility Tokens

As you can guess from the name, a utility token is a crypto asset that lends some kind of utility to the end-user. It allows the user to access certain functionality of the network and buy products or services from the crypto project in question. These are the most common types of tokens out there and have the highest possible demand because of their wide functionality; these cryptocurrencies could project different use cases and therefore value to the end-user.

Security Tokens

Security tokens are actually the ownership proof for various financial assets that are traded in real-time on a dedicated blockchain network. These might act as a financial instrument such as these could project real estate in the metaverse, some kind of tokenized equity, or even a commodity that is tradeable on a dedicated crypto exchange. These kinds of tokens are extremely regulated and therefore are rare at the end to come by in the crypto market.

Governance Tokens

These are the type of tokens that provide the end-user with the ability to cast their vote to discuss or share their thoughts on some kind of legal or private matter that is imminent to the future of the very blockchain this particular token represents.

These tokens are used as a distribution of power among the holders of the token and allow them the ability to decisions making and regulate the governance-oriented aspects of the network; you can consider these as the stocks of a corporate entity that has allowed the trading of its metrics in an open trading platform which is the stock market but here the thing is completely closed, and it only reflect itself to a select few personnel.

Non-fungible Tokens

Non-fungible tokens are actually the digital depiction of anything that resides on the blockchain network; it allows the creator or developer for that particular something to tokenize the entire thing into hundreds or even thousands of different bits that are available for active trading or selling on a decentralized crypto exchange for a proper fee or a monetary value equivalent to a particular cryptocurrency.

Non-Fungible tokens actually create a record of every single transaction that has ever occurred on a dedicated blockchain medium and update everything within the immutable Ledger that can’t be changed once these settings have been written in there.

You can’t delete these records or edit them even if you want to. This allows people to interact with each other and perform certain financial transactions that would have been extremely difficult to pull off in the real world because there would always be a requirement of an intermediary, but this thing right here takes away any reason to include an intermediary whatsoever.


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