Learn the ABCs of #cryptocurrency in simple language! Get acquainted with commonly met classifications like altcoins, stablecoins, and DeFi coins. Expand your knowledge for education purposes and investment decisions. Perfect for beginners and anyone curious about digital currencies.
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Introduction
In the last review (Cryptocurrencies for dummies) we remembered that #Blockchain, in simple terms without rigid technical details, is a distributed and decentralized database in which there is no single owner of the system, unlike traditional systems.
Today there are already tens of thousands of crypto projects built on blockchain technology with their own cryptocurrency.
We also defined that #Cryptocurrency is any token (entry in the blockchain) of any project built on the basis of blockchain technology, which has sufficient value for people to be a mean of exchange for other resources in the virtual space.
In this review, let’s try to figure out what cryptocurrencies there are. This is necessary to find the answer to the logically following ones: How to estimate cryptocurrency? How to earn with cryptocurrency?
Let’s get started…
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Why is it important for you to understand what cryptocurrencies there are?
Understanding cryptocurrency classifications is important for several reasons:
General education and awareness. As blockchain and cryptocurrencies continue to evolve and gain mainstream attention, a good understanding of this topic will allow you to become part of this technological revolution faster and more effectively than 99% of people. Figuratively speaking, while others continue to count on their abacus, you are already starting to use a personal computer.
Identifying use cases. Knowing what types of cryptocurrencies there are helps you identify cryptocurrencies that suit your personal interests and use cases. Without knowing what types of cryptocurrencies there are, you may simply not be aware of the existence of a certain type of crypto-project, although this application option may solve your immediate problem and correspond to your specific tasks.
Investment and Trading. Different types of cryptocurrencies may exhibit distinct price trends, volatility levels, and provide diverse financial tools. By understanding classifications, investors and traders can make more informed decisions about which cryptocurrencies to invest in or trade based on their goals, risk tolerance, and market conditions. By spreading investments across different types of cryptocurrencies, investors can reduce risk exposure and potentially enhance returns by capitalizing on diverse market opportunities. If you are going or already invested in crypto-trading, you MUST gain a solid awareness of types of cryptocurrencies.
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Well, what cryptocurrencies are there?
Unfortunately, there is no strict limit on the number of ways to classify cryptocurrencies, since they can be grouped and classified in different ways based on different criteria. But the most commonly met categories of cryptocurrencies are:
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Altcoins.
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Stablecoins.
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Smart-contract platforms.
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Proof of Work (PoW) coins.
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Proof of Stake (PoS) coins.
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dApp coins.
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Decentralized Finance (DeFi) coins.
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Privacy Coins.
There are many more ways to classify cryptocurrencies, each providing a unique insight into the diverse characteristics and functions of blockchain technologies. Moreover, each cryptocurrency can belong to several categories at once. For the reason that classification is carried out both according to technological characteristics and functional purpose and there is no single standard.
It is worth noting that such a variety of classifications tells us about the wide range of applications and use cases for cryptocurrencies.
Next, we will go through the designated classes of cryptocurrencies with a simple explanation of what they are.
Altcoins:
“Altcoins” is a term used to refer to all cryptocurrencies other than Bitcoin. The name is derived from “alternative coins.” Altcoins encompass a wide range of digital currencies, each with its own unique purposes, and underlying technologies.
Examples include Ethereum (ETH), Ripple (XRP), Litecoin (LTC), Solana (SOL) and many others.
Stablecoins:
These cryptocurrencies are designed to maintain a stable value by pegging their price to a fiat currency (like the US dollar), a commodity, or a basket of assets. For example, Tether (USDT) and USD Coin (USDC) are backed 1:1 by US dollars held in reserve. It is worth noting that stablecoins are a de facto private currency and are highly dependent on the financial stability of the organization providing its reserves. For example, Tether (USDT) is issued by Tether Limited, and the stability of USDT depends on the company’s ability to maintain sufficient reserves of US dollars.
Another example of stablecoin. DAI cryptocurrency are backed by reserves in other cryptocurrencies, maintains close 1:1 exchange rate with US dollar.
Smart Contract Platforms:
“Smart contract platforms” refer to blockchain networks that support the creation and execution of smart contracts. Smart contracts automatically execute in a blockchain environment the terms of the contract when predefined conditions are met, without the need for intermediaries.
Moreover, not all blockchains support smart contracts by default.
The first and most famous #Bitcoin blockchain was launched back in 2009. However, the idea of when predetermined logic is executed based on certain predetermined rules was brought to life by the creators of #Ethereum in 2015.
Currently, the most used smart contract platforms are Ethereum (ETH), Solana (SOL), Binance Smart Chain (BNB), Arbitrum (ARB).
Proof of Work (PoW) Coins:
This classification is carried out on the basis of the technology that ensures consensus in the blockchain. And these are cryptocurrencies, like Bitcoin (BTC), which rely on the PoW consensus mechanism, where miners compete to solve complex mathematical puzzles to validate transactions and create new blocks of entries on the blockchain.
Proof of Stake (PoS) Coins:
This is one more classification which is carried out on the basis of the technology that ensures consensus in the blockchain. In contrast to PoW, PoS cryptocurrencies validate transactions and create new blocks based on the amount of coins participants hold and are willing to “stake” as collateral. Examples include Ethereum (ETH) and Solana (SOL). These days, majority of blockchain use this technology for securing consensus.
dApp coins:
“DApp coins” or decentralized application coins, refer to cryptocurrencies or tokens native to specific decentralized applications (DApps) built on smart contract platforms. These coins are often used as utility tokens within their respective DApps, providing access to features, services, or governance rights within the application ecosystem.
Examples of popular dApps coins today: Uniswap (UNI), Aave (AAVE), Compound (COMP), Galxe (GAL) and many others.
Decentralized Finance (DeFi) coins:
Decentralized finance (DeFi) coins, also known as DeFi tokens, are cryptocurrencies of dApp projects specializing in decentralized finance services (DeFi) such as decentralized exchange, lending, borrowing, yield farming, staking, leverage lending, liquid pools, derivatives and so on…. Examples of popular DeFi coins include Uniswap (UNI), Aave (AAVE), Compound (COMP), Maker (MKR).
Privacy Coins:
Cryptocurrencies focused on providing enhanced privacy and anonymity for transactions, appealing to users who prioritize confidentiality. As an example Monero (XMR) coin. Monero (XMR) operates on its own blockchain. Monero prioritizes privacy and anonymity, obscuring transaction amounts, sender addresses, and receiver addresses using cryptographic techniques such as ring signatures, stealth addresses, and confidential transactions.
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Where else can I find knowledge about cryptocurrencies ?
For further independent study of the topic of cryptocurrencies, I recommend the following resources.
Offers beginner-friendly guides, tutorials, and educational articles on cryptocurrencies and blockchain.
Offers news, market analysis, and educational content on cryptocurrencies and blockchain.
one of the most popular and widely used cryptocurrency data websites, providing a wide range of information and metrics related to cryptocurrencies and digital assets.
leading web-resource for analyzing and tracking decentralized applications (dApps) built on various blockchain platforms.
offers insights about leading smart-contract platforms, ranking them, striving to enlighten real valuable, reliable and prospective platforms (This project is under development, please be understanding)
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As a summary.
Cryptocurrencies come in various types, including altcoins, stablecoins, smart contract platforms, PoW coins, PoS coins, dApp coins, DeFi coins, and privacy coins. Understanding these classifications is crucial for education, investment decisions, and identifying use cases. Each type serves different purposes, from facilitating transactions to supporting decentralized applications and providing privacy features. Resources like DappRadar, Investopedia, CoinTelegraph, CoinMarketCap, and BlockchainMetricsOnline offer valuable insights and tools for learning about cryptocurrencies.
If you are interested in this topic, let’s delve into details together.
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