Bitcoin (BTC 0.05%) has emerged as a game-changing digital currency since its inception. Because it allows peer-to-peer payments without the need for a third party (such as a bank), it has triggered a tidal wave of additional cryptocurrencies and digital assets that employ blockchain technology.
Blockchain is a digital public ledger in which information about each transaction is assigned a unique “hash” (or identity) and added to the end of the ledger. Bitcoin’s success has highlighted blockchain’s potential to decentralise and strengthen the digital economy, putting it on track to challenge the status quo.
Crypto coins versus tokens
First things first. Learn the difference between a coin and a token. When discussing cryptocurrency, you may hear the terms “coin” and “token” used frequently. There is a distinction between these terms, despite their appearance of being equivalent. It’s critical to keep them straight.
A digital coin is created using its own blockchain and functions similarly to traditional money. It can be used to store value and as a medium of exchange between two parties conducting business with one another. Examples of currency include Bitcoin and Litecoin (LTC -0.02%).
Why are there so many types of cryptocurrency?
Blockchain technology is open source, which means that any software developer can take the original source code and construct something new with it. Developers have done exactly that. As of this writing, there are expected to be over 13,000 distinct cryptocurrencies in circulation, and the number is growing. For comparison, the number of cryptocurrency just topped 1,000 a few years ago.
One of the reasons for the growth is the relative ease with which new cryptocurrencies can be generated. The source code from one can be used to create another. For example, the Ethereum network may be used to generate your own digital currency. Sometimes there are “forks” in the software code that change the rules of how a cryptocurrency is governed.
This can lead to the formation of a new cryptocurrency. Bitcoin Cash (BCH 3.53%) was developed in 2017 as a result of a Bitcoin fork that enabled more transactions to be recorded on a single block of the blockchain.
Soaring cryptocurrency prices have prompted many developers to try to get a piece of the action. Blockchain technology has applications beyond digital money. So, while some cryptos may be a bubble that will eventually burst, the decentralised nature of the technology and the broad scope of how it may be utilised in the software industry are two of the reasons for the abundance of cryptos.
Main forms of cryptocurrency:
Bitcoin is regarded as the first cryptocurrency, with other cryptocurrencies referred to as “altcoins” (a combination word derived from “alternative coin”). It’s tough to tell which cryptos are the finest, but Bitcoin and some of the larger altcoins are top choices due to their scalability, anonymity, and the range of functionality they offer.
1 Bitcoin
Bitcoin is regarded as the first decentralised cryptocurrency, utilising blockchain technology to conduct payments and digital transactions. Instead of relying on a central bank to control an economy’s money supply (such as the Federal Reserve in collaboration with the United States Department of Treasury) or third parties to verify transactions (such as your local bank, credit card issuer, and merchant’s bank), Bitcoin’s blockchain serves as a public ledger of all transactions in Bitcoin’s history.
The ledger allows a party to prove ownership of the Bitcoin they are attempting to use, which can assist prevent fraud and other unauthorised tampering with the currency. A decentralised currency can also enable peer-to-peer money transfers (such as those between parties in two separate nations) faster and cheaper.
2 Ethereum (Ether)
Ether is a token used to conduct transactions on the Ethereum network. Ethereum is a platform that uses blockchain technology to enable the creation of smart contracts and other decentralised applications, which means that the software does not have to be distributed on app exchanges like Apple’s (AAPL 0.59%) App Store or Alphabet’s (GOOGL -1.71%)(GOOG -1.58%) Google Play Store, where they may have to pay a 30% cut of any revenue to the tech titans. Ethereum is both a cryptocurrency (real currencies are measured in Ether) and a software development sandbox.
3 Tether
Tether is a stablecoin, which means it is tethered to a fiat currency, in this case the US dollar. Tether’s concept is to combine the advantages of a cryptocurrency (such as the elimination of financial intermediaries) with the stability of a currency issued by a sovereign government (as opposed to the wild price volatility inherent in many cryptos).
4 Binance Coin
Binance Coin is available on the Binance cryptocurrency exchange platform, along with other digital coins that can be traded. Binance Coin can be used as a currency, but it also allows for the creation of tokens that can be used to pay Binance exchange fees and power Binance’s DEX (decentralised exchange) for app development.
5. USD Coin
USD Coin, like Tether, is a stablecoin linked to the US dollar. USD Coin, like Tether, is based on the Ethereum network. The goal of USD Coin was to create a “fully digital” dollar that had the stability of US fiat currency but does not require a bank account or the bearer to live in a specific nation. Rather than an investment, USD Coin is envisioned as everyday money that may be spent with online merchants.
Are there different types of cryptocurrency trading?
Investing in cryptocurrency differs from investing in stocks. Stock signifies firm ownership and a claim to the company’s profits. However, purchasing cryptocurrency coins is a speculative wager on the price movement of that digital currency, which can be highly volatile and susceptible to the law of supply and demand because digital money is not a dynamic asset on its own. Cryptocurrencies can be exchanged for other digital currencies or fiat currencies such as the US dollar using a digital wallet on a trading app.
However, there are other ways to earn money than trading. Certain cryptocurrencies can be “staked” for rewards. Once an investor purchases a cryptocurrency, it can be stored in their account and used to authenticate transactions on the blockchain network. This way of fuelling a blockchain network is known as “proof of stake,” and crypto owners can receive a form of dividend by staking their holdings, which are often paid in additional coins or tokens.
In addition to trading digital currencies, CME Group (CME 1.09%), a renowned derivatives exchange, offers contracts on Bitcoin and Ethereum. Futures and options are commonly employed as hedges against price changes in the underlying asset.
Where to acquire any form of cryptocurrency.
There is no single spot where you can access all of the cryptocurrencies that are currently available. Coinbase Global (COIN 3.19%) is one of the largest trading platforms, supporting over 100 cryptocurrencies (including the majority of the top ten by market capitalisation). Binance is another popular trading platform where Binance Coin and tokens may be traded.
