Types of cryptocurrencies and their purpose

Many years ago cryptocurrencies were created with a single goal - to easily make anonymous payments. Now, cryptocurrencies have gone beyond the primary functionality and perform a large number of other functions, for example, they are used to store personal capital, they act as financial instruments, investments are made with their help and users become players on the exchanges. Today we will figure out what a cryptocurrency is and how it works.

The exact number of cryptocurrencies is currently unknown. Every minute there are new cryptomonets, which experienced cryptomaniacs often do not pay attention to. They are used to trust digital coins, which have already proven themselves on the positive side and remain at the peak of popularity for many years.

Absolutely all cryptomonets are united by the fact that they are based on blockchain technology, where transactions are carried out in encrypted form. But, each crypto coin is unique and has certain features. Considering the key aspects of cryptocurrencies, it can be argued that they all have their own specific value and a unique cryptographic algorithm.

What are cryptocurrencies?

All cryptocurrencies can be divided into two categories: decentralized coins that are controlled on equal terms between miners and those that have a central authority. Further, cryptocurrencies can be conditionally divided into three types: bitcoin, altcoins and tokens.

Bitcoin (BTC)

The first place from the aforementioned cluster is occupied by Bitcoin. It is from this crypto that the history of cryptocurrencies originates. It was registered in 2008 by a group of people (or one person), who later became known as Satoshi Nakamoto. The main requirement for bitcoin was this: it had to become an alternative to the usual fiat money and acquire absolute autonomy from government agencies. He coped with the task perfectly well, and in addition, he laid the foundation for a new digital financial era, which captured almost all areas of people's lives. All subsequent cryptocurrencies have been developed and are being developed on the basis of the bitcoin code with minor changes.

We remind you that we previously wrote about the pros and cons of bitcoin.

Altcoins

Since Bitcoin is considered the forefather of other cryptocoins, other coins are usually called altcoins, which means alternative to Bitcoin. There are a huge number of altcoins. Most of them have functionality and algorithms similar to bitcoin. The rest were launched with the motive of improving bitcoin and solving those problems that bitcoin cannot cope with. Altcoins are not just a decentralized means of payment, but also promising projects that in a couple of years will change the traditional course of events in the financial world.

The main altcoin cryptocurrencies

The most popular and top in terms of market capitalization are the following altcoins: Litecoin, Ethereum, DASH, Ripple and IOTA:

• Litecoin (LTC) is the first coin that appeared after bitcoin. In 2011, it was created by MIT graduate Charles Lee, based on the mother code of bitcoin, but with design changes that made it possible to speed up the speed of cryptocurrency transactions, facilitate mining and create an improved algorithm.
• Ethereum (ETH) – the second most valuable and popular cryptocurrency. Created in 2015 by a group of crypto addicts and Vitaly Buterin. “Ether” is a piece of code that acts like a currency needed by investors and app developers. Such a digital payment for launching programs. The main feature of Ethereum is expensive, intelligent smart contracts and DApps programs. Based on them, decentralized blockchain programs and completely new cryptocurrencies are launched. Ethereum has brought unlimited opportunities to the financial world for creating useful business projects and start-ups, which are planned to be introduced into government systems.
• DASH – originates from 2014, where it was originally called DarkCoin. It is easy to guess from the name that the main mission of this cryptocoin was to become a means of payment for the hidden DarkNet network. This is the first cryptocurrency that has become completely anonymous and operates on a two-tier scheme, which makes it impossible to calculate transactions and data of the recipient and sender.
• Ripple (XRP) – was launched in 2012 as a network that processes and makes urgent payments with a minimum commission. The purpose of cryptocurrency is to deliver money to all corners of the world. That is why it is so in demand for banks that want to settle international transactions. Unlike other coins, Ripple does not need to be mined, so it uses less computing power than any other altcoin.
• IOTA – launched in 2015 and claims to be a breakthrough in the world of online shopping. The main feature of this cryptocurrency is instant transactions for small amounts, which allows you to pay for minor purchases and control transactions automatically. The project is still being developed, but experts already give quite positive forecasts and say that in the future millions of users from all over the Earth will connect to this project. 

Tokens

Unlike Bitcoin and altcoins, tokens cannot exist on their own, as they do not have their own blockchain and depend on the network of other cryptocurrencies. They are prescribed and embedded on top of the existing chain of key blocks. Tokens are issued in order to attract investors to ICO projects. As for crowdfunding, then tokens can serve as a unit of value or even act as shares. If the investment project develops, then such tokens acquire real value and can participate in exchanges on cryptocurrency exchanges.

The most famous tokens are: Tron, Binance Coin, EOS, Tether and OMG.

• Tron. This platform was developed on the Ethereum blockchain and was used for settlement within the company. 100 billion US dollars is the maximum emission of the token. The coins were issued as part of the ICO, as a result of which 40% of the coins were sold, and investments were also attracted for the development of the project. Another 35% of the coins were frozen on the accounts, and all the rest began to be sold.
• Binance Coin is the token of the Binance crypto exchange. The token was issued in order to raise funding for the trading floor, but, in addition, it became an advertisement that draws attention to the exchange. Using Binance Coin (BNB) you can pay a commission on the platform with a discount that grows every year if you actively use the services of the crypto exchange.
• EOS. The token was issued by the EOS project (where did the eponymous name of the token come from) in order to raise funding, which was successfully achieved, raising more than 200 million US dollars. EOS says that they are real “Ethereum killers” because they offer a platform similar to it, on which they allow third-party developers to create applications on the blockchain
• Tether is a fairly stable token, because its price is backed by the dollar. The uniqueness is manifested in the fact that even though the platform itself works on the blockchain, at the same time it makes it possible to conduct transactions in fiat.
• OMG - released by a company located in Asia, as part of an ICO, the main goal of which was to attract as many investments as possible. These events were successful and as a result of sales, they managed to earn 19 million US dollars. These funds were used to create a decentralized platform for the exchange of fiat and crypto.

Cryptocurrency fork – what is it?

If we talk about the type of cryptocurrency by the method of education, then we can recall forks. These are cryptocurrencies that are clones of the original cryptocurrencies, taking into account various changes in the code. For example, cryptocurrencies Litecoin, USDT, BCH are forks of bitcoin. The forks themselves are divided into two types:

• Soft fork - performs a soft modification of the cryptocurrency without violating the main protocol.
• A hard fork is a hardened modification of a cryptocurrency, where the main protocol is divided into two parts that cannot interact with each other.

To summarize:

Bitcoin is the king of the cryptocurrency market, which to this day remains the leader in terms of market capitalization.

Altcoins are other cryptocurrencies that seek to separate from Bitcoin and become unique.

Tokens - an electronic receipt from the creators, in which he undertakes to provide you with something in return; this is a kind of unit that replaces securities, indices, gold, etc.

Absolutely all types of cryptocurrencies we have considered are changing the world, making financial transactions autonomous from regulators, governments, and even banks. This phenomenon can be called a huge breakthrough in the modern crypto ecosystem.