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Types of cryptocurrency

Want More Tempting Opportunities to Invest In? Find out the Main Types of Cryptocurrencies First! 

With the threat of trade wars escalating and the global economy slowing, investors are looking for alternative ways to get money in addition to classic defensive tools. The cryptocurrency market is not ignored either - it is fashionable and often discussed.

In addition to the founder of the blockchain industry - bitcoin, there is a huge variety of projects. They can be both extremely successful, and, conversely, completely hopeless, up to fraudulent stories. Opportunities for quick money border on the risk of high losses. Therefore, we suggest you familiarize yourself with the types of cryptocurrency in order to make at least a first impression of the model of this market.

What Are Cryptocurrencies?

Cryptocurrencies are digital currency units that act as an alternative to fiat money and currencies familiar to us. Any digital unit, bitcoin or altcoins, is extracted using special technology in an immense digital space. Cryptocurrency, although it has its own face value and is tied to the exchange rate, does not have a degree of protection, serial number, and series, as well as other attributes inherent in real money.

Bitcoin and altcoins alone are not money, but a complex digital product with its own crypto code and encrypted record. To receive the status of money, albeit digital, it needs to go through a complex mechanism of transformation and processing through special technologies.

What is The Role of Miners In Cryptocurrency

The first rise of Bitcoin - in 2013 - has already become history. Last year began with a new rise when the Bitcoin exchange rate began to overcome one thousand-dollar line after another. This was the impetus for the development of mass mining: ordinary people in many countries began to invest in equipment. The information boom raised around digital money also played a significant role.

However, the basis of their popularity has become technological simplicity and accessibility. Building a power plant at home to sell energy to neighbors is still difficult. And here - it’s enough to buy video cards sold in the store, put them in your home computer and start making money.

Therefore, now the mining industry has developed all over the world: some develop algorithms, others manufacture equipment, still others create cryptocurrencies, and others steal them.

However, the general hype has a flip side: first, the equipment that is used for mining disappeared, then it returned but at high prices. And if a year ago, to start mining crypto, it was enough to get 4–5 video cards for the farm, now you need 6–8 video cards. Only in this case, you can pay back the investment in less than a year.

In addition, with the advent of new miners, each new coin is given at high cost and cryptocurrency values are raising. Nevertheless, while mining crypto coins remains a fairly profitable business.

The Three Main Types of Cryptocurrency

The whole list of cryptocurrencies can be conditionally divided into three main types.
Bitcoin

Bitcoin is the world's first decentralized digital cryptocurrency. The Bitcoin network appeared in 2009, it works through mining, as a result of which BTC coins are mined. Transactions in the BTC network are peer-to-peer, which means the direct transfer of funds from one user to another, without the participation of third parties and regulatory authorities in the form of banks, the state, etc. The Bitcoin cryptocurrency works on blockchain technology, which fundamentally distinguishes it from all previously created electronic currencies and payment systems. The Bitcoin blockchain (BTC) is not tied to any physical assets or “official” fiat currencies, and the price of a BTC digital coin is regulated solely by market supply and demand, that is, the value that people themselves put into it, like gold for example.

Altcoins

Most altcoins (alternative digital currencies) are just a variation of bitcoin. The creators of new currencies take the existing bitcoin code and improve it at their discretion. As a result, we get a branching of cryptocurrencies, with a single “start” in the form of bitcoin. A similar process is called a hard fork. A hard fork occurs when currency users cannot come to a single decision about how digital money works.

For example, this happened with Bitcoin in August. A distinctive feature of Bitcoin is the speed and low cost of transactions. However, cryptocurrency has become so popular that the system has ceased to cope with the amount of work. As a result, Bitcoin users could wait several hours, or even days, for the operation to complete.

Bitcoin users decided it was time to improve the system. But cryptocurrency does not have a single owner who could make new changes. To change a decentralized cryptocurrency, a majority solution is not enough. It is necessary that 99 percent of users agree with the new rules and begin to comply with them. And although the decision to change the Bitcoin system was made, users could not come to a common plan of action. As a result, Bitcoin split into Bitcoin and Bitcoin Cash, and the market has become one more cryptocurrency. In addition to Bitcoin Cash, another 5 top altcoins are popular among alternative digital money to Bitcoin.

Tokens

Quite often, along with the term “coin”, the word “token” is also used in relation to cryptocurrencies. Are these two concepts 100% synonymous? What is a token and what are they? Where is it possible to buy them? There are many questions, answers to the main ones will be presented below. And in order to start, you need to clearly understand the subject of consideration - tokens. This is a conditional accounting unit that reflects the digital balance in an asset. For this purpose, blockchain technologies are used, and for access to tokens, it is usually necessary to use special software.

There are several types:

  • equity tokens;

  • utility tokens;

  • asset-backed tokens.

The first type from the list is actually nothing more than the securities (stocks) of the company, the second is used by online platforms and can represent points, game currency, reputation, etc. The third type of tokens is the most interesting, as it acts as a kind of commitment to services or goods. However, what are the tokens provided with?

Of all the types listed above, only asset-backed tokens can boast of collateral, because, in simple words, it can be represented as a digital analog of certain services or physical (real) assets. Relatively speaking, such tokens can be equated, for example, with the right to visit a museum, receive a kilogram of oranges in a store, etc. That is, their owner can convert tokens into real goods and services without any difficulties. The guarantor of the possibility of such a procedure is an organization that has committed itself to support such an “exchange”.

Main Types of Cryptocurrencies You Should Know About

Here is a cryptocurrency list that will help you to find out the most reasonable opportunities to invest in as well as digital currency prices. 

Bitcoin (BTC)

Bitcoin is a decentralized currency that uses the principle of a peer-to-peer network, which makes it possible to collectively issue, process and verify transactions. Due to the lack of a central authority, Bitcoin is independent of the intervention or manipulation of any government, however, this, in turn, is the absence of guarantees of the smooth operation of the network or any kind of support for the value of the cryptocurrency.

Bitcoin appears in digital form during the mining process. For bitcoin mining, powerful computers are used. At the moment, the total mining performance is 25 bitcoins in 10 minutes. According to the algorithm established for bitcoin mining, the total amount of cryptocurrency is limited to 21 million units of bitcoin. According to estimates, this amount will be reached in 2140.

This restriction is a hallmark of cryptocurrency from traditional currencies. The issue of paper money is a centralized process conducted by the Central Bank of the state, the volume of the issue depends on monetary policy and, theoretically, has no restrictions. As a rule, deposits in national currency are insured by the government body against bank bankruptcy.

Bitcoin does not have such restrictions and insurance mechanisms. Its value directly depends on the intentions of investors to pay for it at the current time. In case of bankruptcy of the Bitcoin exchange, account holders have very little chance of returning their funds.

Bitcoin, due to the lack of a central regulator and anonymity of transactions, has become especially popular among money laundering, smuggling and other areas of illegal activities. Very often, statements are made that the cryptocurrency Bitcoin is used to finance terrorism.

Litecoin (LTC)

The Litecoin cryptocurrency was created in the fall of 2011 by the programmer Charles Lee as a fork of Bitcoin, that is, it was created based on its technology. Taking into account that the Bitcoin code is available on the Internet and is open in nature, everyone can do it, however, only LTC was able to win the status of top cryptocurrency and got the name "digital silver".

The essence of the system is that the computers on which the program, which is the LTC Litecoin wallet program is installed, are connected to a single network, all of whose participants are decentralized and anonymous to exchange (make transactions) digital money within the network.

Here are the main features of LTC:

  • The number of coins to be issued is limited to 84 million units, which contributes to their deflation, i.e. the price of crypto will only grow over time. The speed of creating one block in a chain is 2.5 minutes, which is 4 times faster than Bitcoin. This avoids the scaling problems specific to digital gold and makes it a good bitcoin alternative.

  • High transaction speed. To confirm the transfer, you need to create 6 blocks, which theoretically takes only 15 minutes. After introducing a SegWit puncture, part of the data is taken out of the system, which increases network bandwidth, and operations are carried out much faster than this indicator.

  • The complexity of the network is recalculated twice a week, taking into account the total hash rate and the average block generation time.

Ethereum (ETH)

Ethereum cryptocurrency today is the second largest in terms of capitalization after bitcoin. Despite the unpleasant incidents, Ethereum remains a strong altcoin capable of competing in the cryptocurrency market. Practice shows that this is one of the best cryptocurrency for today. 

However, Ethereum is not only about currency. This is about global data sharing. In the case of Ethereum, each unit of data is sewn into its own special cell, and in order for the system to give a positive answer to the question, the user must have a special crypto key. Today, a huge number of mobile and financial applications based on this system, and investors continue to consider Ethereum as an attractive and fairly stable opportunity. The creator of the system himself calls for the development of other cryptocurrencies that will work on its basis and only improve the original idea.

Zcash (ZEC)

In the fall of 2016, Z-cash was worth 6 times more expensive than Bitcoin cryptocurrencies prices - $ 4,000. Enthusiasts believed that a new anonymous cryptocurrency could become a “new bitcoin”. The excitement passed, and with it, cryptocurrency rates fell: now Z-cash takes 22nd place in the TOP cryptocurrencies. However, Zcash Coin uses new zero-disclosure cryptography methods to protect transactions and guarantees the confidentiality of transfers. To achieve complete anonymity of payments is the main goal of creating Zcash.

Mining Zcash is not as complicated as mining bitcoin, and the equipment is not so expensive: you can do with one video card. A new block appears on the network every 2.5 minutes - four times faster than a bitcoin block. For mining the block, the miner receives a reward of 12.5 ZEC.

You can store Zcash on an official Linux wallet that you need to download and install on your computer, or wallets from third-party developers - for example, WinZec for Windows. There are other wallets with Z-cash support from third-party developers. It is safest to store cryptocurrency on cold storage wallets: there they are not accessible to hackers.

Dash (DASH)

The Dash system was created as a payment tool for permanent use. Reducing the risks of transactions and creating a real alternative to Bitcoin were priorities for developers and the main cryptocurrency meaning. The difference from Bitcoin is in the architecture of the platform. Dash is a democratic system with 2 levels.

Secondly, all payments in Dash are completely anonymous. No traces of transactions will remain. Bitcoin users are forced to put up with the publication of payments on the blockchain, which is why money transfers can become available to everyone. Dash uses anonymization technology. The result is privacy, typical only for cash payments.

Thirdly, it is the most secure and convenient cryptocurrency. The system cannot be hacked: a decentralized Masternode network is used, which makes cryptocurrency as secure as possible.

Ripple (XRP)

We immediately focus on the fact that this is not a full-fledged cryptocurrency in the generally accepted sense, such as Ethereum and Bitcoin, or their forks. To begin with, this system appeared in 2004, that is, much earlier than most modern virtual money. And the main goal pursued by the developers was to create alternative payments for partner banks. This did not happen right away, the project developed over a period of ten years and acquired its final form (with clearly defined goals and structure) only in 2015 when the Munich bank Fidor began cooperation with Ripple Labs. This led to a significant increase in the popularity of the coin, and, consequently, the overall capitalization increased. Subsequently, Ripple became interested in (became investors and partners) Western Union, an association of Australian banks - the “Commonwealth Bank of Australia” and other financial institutions.

To date, the operation of the Ripple system can be represented as follows:

  • Initially, all coins were issued (about 100 billion XRP) and are no longer issued. This is the essence of the platform;

  • Wallets and transactions are created, everything is recorded programmatically. All transaction history is saved;

  • Coins are bought on exchanges and in banks, due to invested funds, the exchange rate and total capitalization are growing.

The system determines the number of coins in use by transactions and wallet addresses. To increase reliability, Ripple integrates with traditional banking security systems: biometric identification, transaction history from the moment of opening a personal account and other measures. The same mechanism is provided for regulating the course in the opposite direction. Thanks to this, Ripple has a very stable exchange rate compared to other cryptocurrencies. So, if you do not want to risk with new cryptocurrency 2020, pay attention to it. 

Bitcoin Cash (BCH)

Bitcoin Cash is a fork of Bitcoin that has separated from it. It happened as a result of the separation of Bitcoin on August 1, 2017. Now all transactions are divided, they fall into different branches of the blockchain, since the programs of each branch work with the previous block formats, but reject the new formats of each other. In 2017, it was one of the best new cryptocurrency since everyone who had bitcoins before August 1, after the separation, saved all their bitcoins, but automatically became the owners of a similar amount of Bitcoin Cash.

Let’s Wrap It All Up

Bitcoin and other cryptocurrencies that make financial services independent of governments, regulators, and even banks have already begun to change the world. Bitcoin is the hardest currency that has been used so far as a payment or investment system by people with solid computer science knowledge, or an elite with serious funds, who thus diversifies their wallets with a new exotic currency like Bitcoin.

Thus, although the long-term future of cryptocurrencies still seems vague, at present their popularity, including due to widespread media coverage, is only growing. This innovation as well as new cryptocurrency that is periodically launched, has already spawned a whole market for companies that are involved in the exchange, storage, protection of cryptocurrencies, aggregation of operations for online stores and provide other services demanded by consumers. And by the way, this also generated a large number of fraudulent systems, so we do not recommend investing large amounts of money without a thorough preliminary analysis.