How do the various cryptocurrencies differ today, how many types exist and how many are used?
We will answer all these questions later in this post.
But first let’s clarify a little bit about cryptocurrencies and how they work, then let’s see in more detail how they differ.
As you all know, cryptocurrencies were born chased at the birth of Bitcoin and so far there are thousands of them.
Many disappear in a few days, others just don’t see the light while others are the ones that control the market.
What are cryptocurrencies?
Cryptocurrencies are virtual currencies based on cryptography and operating on a distributed ledger.
This means that there is no central body that controls everything but it is the system that controls itself.
The virtual word means that they cannot be touched like the dollar or the euro but they exist on and thanks to the internet.
Each cryptocurrency has a service which if used is paid for in a specific virtual token.
For a cryptocurrency to exist, the concept of Remuneration must stand, otherwise it would not make sense to use it.
The distributed register is called Blockchain from the word chain of blocks that are connected to each other through cryptographic calculations.
Everyone can participate in the validation of the blocks and in return receives the specific cryptocurrency that he went to support.
Each block contains inside the information that occurred in a time interval, for example a transaction.
In addition, the blocks contain other information such as the hash code that would be the DNA of each block.
This Hash code is connected to the previous one through an alpha numeric sequence.
The Blockchain is very difficult to invalidate because if each block is connected to the previous one it means that a block to be modified must modify the whole chain.
In this post I only talked about blockchain and how it works.
The various cryptocurrencies
Before we saw in a short time how a cryptocurrency is defined, but now let’s see the various cryptocurrencies that we have today.
Each cryptocurrency has its own functioning, which serves a specific thing.
Originally we only had Bitcoin, but after this technology reached a certain development, problems arose which led to the creation of others.
To date there are thousands of cryptocurrencies but most are projects that have no future because they have no functionality.
Cryptocurrencies differ according to their function and can be of these types:
- The Bitcoin protocol which is the mother cryptocurrency;
- Smart contract platforms;
- DeFi platforms;
- Stablecoin and CBDC;
- Platforms for services.
Each of these has characteristics that differentiate them from each other.
Among the various cryptocurrencies, however, there is a link that unites them which is that of the Blockchain, in fact even if they are different they have the same backbone.
Bitcoin was the first cryptocurrency to be launched on the market, but according to some funds there was talk of cryptocurrency already in the 90s
It is the mother protocol, that is, the basis of every existing cryptocurrency, every project must be based on it in order to function.
This is because it is the protocol in which the concept of decentralized cryptocurrency has been verified and its functioning has been tested.
Its structure is managed by the Miners who carry out the block validation operations and uses the Proof of Work as a consensus algorithm.
So Bitcoin is not only currency but it is a true basic system, that is, the Internet of cryptography.
Then we have the Currencies which are those cryptocurrencies created after bitcoin and which have the function of transferring money between one subject and another.
They were created to improve the appearance of the high costs and the slow speed of transactions that Bitcoin had.
An example is Litecoin, from the word itself we can understand a light currency that is used to perform transactions very quickly.
But we also have highs like Monero, Zcash, Dash, Bitcoin Cash, etc. and some use POW while others use POS.
Here I talk about the Proof of Stake POS consensus algorithm.
Since these cryptocurrencies use mining as bitcoins in order to function, they are little used because they are replaced by cheaper ones.
3) Smart contract platforms
There are cryptocurrencies that have a function within them that is that of smart contracts.
Now I don’t want to talk about smart contracts here but I’ve already done it in this article.
A striking example is Ethereum which is precisely the first platform created for smart contracts.
Ethereum is not only this but it is a real system we can compare it to a Microsoft, you can create anything on it.
All smart contract platforms except Ethereum use DPOS as consensus, Ethereum still uses POW.
The reward occurs in stake the token and receive the reward for maintaining the network.
Among the most important projects are Eos, Tron, Cardano, Neo, Tezos, etc.
4) Platforms for DeFi
The Defi that has been developing over the years consists of projects that offer the possibility of decentralizing the financial system.
For example, a loan platform, which previously was a bank, can now be exchanged between people without intermediaries.
A cryptocurrency par excellence and Maker which can generate virtual dollars by collateralising ethereum.
These cryptocurrencies work on platforms like ethereum or eos.
Many exist including Synthetix, Compound, etc.
In this article I talked about DeFi.
Then we have cryptocurrencies linked to exchanges, which are used to be able to buy or exchange the various cryptocurrencies.
There are two types of exchange, those centralized as Binance, and decentralized as Bancor.
The token acts as a discount in transactions for the centralized ones while as real actions where divisions are generated in the decentralized ones.
These cryptocurrencies act as real assets as they can generate liabilities in holding them.
The stablecoins are instead the digitized version of the dollars or euros that work with blockchain.
There are many and the most important is USDTether which was the first to be launched on the market.
These cryptocurrencies are pegged to the dollar or euro and therefore do not increase in value as the highs do.
They are also centralized and therefore work with third-party companies that manage them.
They also guarantee that they have their respective dollars in their safes in exchange.
In this article I talk about stablecoin and how they work.
In recent times we are talking about CBDC which are the current fiat dollar, euro, etc. currencies, but digitized and issued by central banks.
To date they are still not being made, but we are already talking about the digitized dollar and the yuan.
7) Service platforms
Finally we have the platforms that offer services such as Ripple which allows you to make instant conversions between different currencies.
These types of cryptocurrencies include all those that offer services and work with the blockchain.
For example distributed server services, social networks, etc.
The most important include Ripple, Chainlink, Stellar, Iota, etc.
The remaining crypto instead, those with low capitalization are those that have no functionality and therefore are destined to disappear.
Often they are accompanied by projects that have created an ICO or IEO and that act with the money raised.
Just look at their project that promises something big and their team who don’t even know what the members are called.
From these projects we must stay away, they are the collateralising effect due to the growth of a sector.
To conclude, there are many various cryptocurrencies but each of them has its own function in the ecosystem.
Today we still make a lot of confusion in understanding and above all knowing how to differentiate cryptocurrencies exactly.
Only Bitcoin is thought to exist and the rest is rubbish, or one leans and the others are discarded.
This way of doing it is wrong because it is becoming confusing, both because everyone serves a certain task and because the sector is not growing.
Obviously there are always projects, as I said before, that don’t have a function, but that’s another story.
The ecosystem works like this and therefore if you want to be part of this ecosystem you have to accept it for what it is.
That’s why we’ll see you again in the next article.