Cryptocurrency – How It Can Be Categorized Based On Utility

An anonymous developer (or group) launched the cryptocurrency known as Bitcoin in early 2009. New types of cryptocurrency began to emerge by 2011, as competitors used the blockchain technology on which bitcoin was built to launch their own platforms and currencies. To the untrained eye, today’s cryptocurrency market may appear to be nothing more than a slew of similar offerings competing for the attention of investors. We have since entered a new era in which we now have various cryptocurrency that allows businesses all over the world to conduct transactions safely and securely while incurring minimal transaction costs and time. 

Coins vs Tokens

Coins are designed to be a form of currency and are built on their own blockchain. Ether (ETH), for example, is a cryptocurrency based on the Ethereum blockchain. In general, an altcoin is any blockchain-based cryptocurrency that is not bitcoin. Tokens are also built on an existing blockchain, but they are not considered currency. Instead, they are programmable assets that enable the creation and execution of unique smart contracts. These contracts can be used to establish ownership of assets that are not part of the blockchain network. Tokens can be sent and received and can represent units of value such as electricity, money, points, coins, digital assets, and more.

Now, there is so much cryptocurrency in the form of coins and tokens, so it is easy to get lost in the world of crypto. In order to better understand cryptocurrency, it can be categorised into four types, based on their utility.

Currency

Bitcoin, the world’s first cryptocurrency, was created for this purpose. The goal was to make cross-border payments cheaper and faster. It has proven to be a valuable store of value over the years. While one bitcoin was roughly worth $1 in 2009, the value has now risen to $48,000, according to data from coinmarketcap.com.

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Asset

Stablecoins are classified as assets because their value is derived from the value of an external asset. USDT, for example, gets its value from the US dollar. Gold GLC is linked to gold’s value. These cryptocurrencies have characteristics of both a commodity and a currency, making them a hybrid. A transaction can also be settled using commodities.

Object

These cryptocurrencies were created to fund special projects aimed at solving global problems. Siacoin (SIA), for example, aims to address the issue of expensive cloud storage. Sia uses blockchain technology to build a more robust and cost-effective data storage marketplace than traditional cloud storage providers. Another example is Decentraland, an Ethereum-based application that allows users to purchase virtual land (NFT-based) using its cryptocurrency (MANA).

Meme/ Joke coin

These were made purely for fun, with no specific goal or purpose in mind, but they are now worth millions. Dogecoin and Shiba Inu both began as meme coins in their early days, but they are now part of the crypto race.

If you are new to the world of cryptocurrency, or you just want to dip your toe in the investing pool a bit, you need to know about the various types of cryptocurrency, what you can use them for and how each cryptocurrency can be used. If you would like to learn more about the various ways that cryptocurrency can be used to further your investments, you can go here.