Long ago in the year 2009, came a new digital form of money was founded by an anonymous developer known as Satoshi Nakamoto. It is Bitcoin. However, the latter cryptocurrency is not the only one that gained global attention, but the underlying digital ledger technology blockchain also made people aware of it. Today, every crypto enthusiast is eager to gather knowledge about cryptocurrency with topics like Kraken vs Bitfinex, etc. Besides understanding the basic meaning of cryptocurrency, you must also be aware of different types of cryptocurrencies and their benefits. This we are going to discuss in this article.
Being globally popular, Bitcoin has been in preference among investors. Many people have become rich with it. Some of the famous names include Winklevoss Twins, Barry Silbert, Brian Armstrong, Michael Saylor, Sam Bankman-Fried, and Akshay Haldipur from India. Excluding some countries where trading in cryptocurrency is restricted, there are countries like the United States, Canada, Australia, El Salvador, the Central African Republic, and India where cryptocurrency is legally accepted.
Many well-known celebrities have also come in support of cryptocurrencies like Amitabh Bacchan, Kanye West, Ashton Kutcher, Maisie Williams, Paris Hilton, Gwenneth Paltrow, Mike Tyson, Floyd Mayweather, Snoop Dogg, Mark Cuban, Logan Paul, and Elon Musk. Being volatile assets, there are uncertain changes in the price of cryptocurrencies. Hence, it is advised that one needs to be very careful when it comes to investing in them. You can either experience huge gains or total losses. Now let us proceed with our main topic which is based on:
Types of cryptocurrency and their benefits
There is a variation in the types of cryptocurrencies. They are dependent upon the different types of original blockchain technology powering the dominant crypto Bitcoin. All of them do not share similarities in operating like fiat currencies. Hence, this becomes necessary in having a thorough knowledge of the working of cryptocurrencies. So below are the 4 different types of cryptocurrency. Know about their importance.
Going by the name, you can easily know that these coins guarantee stability and are curated for the main purpose of ensuring trustability in terms of value storage. They came as an alternative to standard cryptocurrencies like BTC and ETH, which are prone to high volatility. Their value fluctuates uncertainly. It becomes a very complex task in managing. This is the main reason behind how some crypto investors have become multi-billionaires in a very short period.
Stable cryptocurrencies indicate a blend between the standard cryptos and tokens. These are built upon the existing blockchains but can be exchanged for fiat money. In the crypto market, stablecoins play an essential role in letting ongoing transactions on daily basis and are free from changes in value. Many stable cryptocurrencies experience this feat when their value is pegged to multiple fiat currencies, plus guaranteeing the value of tokens by storing reserves of those currencies.
Advantage of stablecoins over volatile-prone cryptocurrencies
Volatility is the one big hurdle in the way of incorporation of cryptocurrencies into the world economy on a wider scale. The tag of this uncertainty has become a hallmark for them. This becomes very complicated for banks to function with cryptos, especially for retailers and individuals to use them as a payment method or for savings. Contrary to them, stablecoins excel over them. One of the best stable cryptocurrencies like Tether which is pegged to USD finds its best use among cryptocurrency exchanges. Investors can consider it as a default storage medium.
Proof of Work
Bitcoin is the first cryptocurrency that began the wave of new decentralized money operating on the digital ledger blockchain that uses a method called Proof of Work (PoW) for processing transactions. To know about it, one must be familiar with blockchain. This decentralized digital
ledger technology records the crypto transactions via a chain of blocks. For adding transactions a difficult cryptographic problem representing the data that needs to be added must be solved by nodes.
This procedure is now commonly called mining, and it is all because whichever node strikes the accurate answer, is rewarded from the network. Hence, we can say that it is a much more secure way in keeping the records airtight. The remaining of the network uses PoW as the follow-up verification process. And this ensures the agreement and validity of this digital ledger by the parties.
Tokens are the next form of cryptocurrency type. Do not mistake them with currencies that are used generally. No, they are different from these conventional cryptocurrencies. The creation of these tokens is done upon the existing blockchains like Ethereum and is not present as systems that operate independently. A very easier way in knowing this concept are the chips that are used in casino for betting. Even though they represent cash and other valued assets, they can only be utilized in a particular casino where these tokens are issued. Giving another example is a token called Music. It is facilitated by Musicon, an online music streaming service. Listeners do direct payment to the platform directly via this token.
Proof of Stake
The process of Proof of Work lacks scalability performance. To overcome this issue, came the development of Proof of Work, a distinctive consensus model for blockchain technology. PoS came up with the advantage of letting minor pools of nodes for checking the transactions. Compared to PoW, PoS uniquely ensured security. In this system, the validation of all the transactions by all nodes is not necessary. The blockchain using the PoS technique lets things secure and fair functioning.
So these are those 4 different types of cryptocurrency that you have been reading about in this article. Explore more other crypto-related topics on the leading crypto website, Cryptoknowmics. For on-go crypto trading, you can download the Bitfinex app store on Google Play.