Types of Cryptocurrencies

types of cryptocurrency

There are many different types of cryptocurrencies. In this article, we will discuss the most popular types. Each type has its own unique features and benefits. How do you know which type is right for you? This guide will give you some tips on how to choose the right type of cryptocurrency, along with how to accept this digital currency as payment.

How Many Different Cryptocurrency Types are there?

The number of different types of individual cryptocurrencies varies, and they all have price fluctuations. In 2018, there were 1,583 different individual types, according to the price-tracking website for crypto assets coinmarketcap.com.

While you probably heard and saw the most about Dogecoin for a time, courtesy of gregarious Tesla CEO Elon Musk, the most popular form of this digital money are Bitcoin and Ethereum. You’ll usually see these two forms of digital money reign at the top of the cryptocurrency market list in terms of highest market capitalization

Source: coinmarketcap.com.

How to Choose the Right Type of Digital Assets and Cryptocurrency

Acquiring digital assets and cryptocurrency is one of the most important investment decisions that you will ever make. With so many different types of digital currencies available, it can be overwhelming to choose the right one. Additionally, when it comes to choosing the right type of cryptocurrency, there are many factors you need to consider.

First and foremost, do your research. This is probably the most important advice. Do not take anyone’s word for it when it comes to assets and cryptocurrencies. Many frauds and scams abound, so research everything thoroughly before you make any decisions.

Here are a few other factors that you should consider when choosing the right type of cryptocurrency for your needs:

  1. Know the purpose of the currency: Not all crypto is the same. Some are more secure than others. Some have faster transaction times. Some are more private than others. Consider what your needs are before you choose crypto assets.
  2. Stick with higher currency: In general, it is advisable to stick with higher-priced currencies. They are more likely to be around for the long haul and have a lower chance of being hacked or otherwise compromised.
  3. Know how it compares and converts: Ask yourself questions like how do the crypto assets compare to others in terms of price and market capitalization? How easy it is to convert the currency into other types of assets, like cash or gold?
  4. Volatility: Be prepared for the volatility of the market, especially when it comes to crypto. Also, know that crypto assets have less liquidity than other types of conventional financial assets. Therefore, it’s good to know your risk tolerance.
  5. Consider market cap: The market capitalization or market cap of a cryptocurrency is the total value of all the coins in circulation. It’s a good indicator of how successful a project is.

Different Types of Cryptocurrency

Not to be confused with individual cryptocurrencies, of which you saw there are SO many cryptocurrencies earlier, are the four main types on this list. These four come with their own bag of benefits, risks and purposes. Here we explore the different types so you can make an informed investment decision.

1. Proof of Work

To start this list, we have the first type of cryptocurrency which began with Bitcoin. It processes transactions through blockchain that utilizes a process known as proof of work or PoW for short.

When a transaction is made, it is broadcasted to the network and miners compete to validate the transaction by solving complex mathematical problems. The first miner to solve the problem gets to add the transaction to the blockchain and is rewarded with a small amount of cryptocurrency.

The main benefit of PoW is that it is very secure, as it is very difficult to attack or manipulate the network. However, PoW can be quite energy-intensive, as miners need to solve complex mathematical problems in order to validate transactions.

2. Proof of Stake

The second main type of cryptocurrency is proof of stake (PoS), which was designed to address the issue of energy intensity in PoW. With PoS, instead of miners competing to validate transactions, the person who holds the most cryptocurrency in their wallet (i.e. has the largest stake) is chosen to validate the transaction.

The main benefit of PoS is that it is much more energy-efficient than POW, as there is no need to solve complex mathematical problems.

However, some people argue that PoS is not as secure as POW, as the person who validates transactions could be more easily manipulated or attacked. Also, PoS can be quite centralized, as the person who validates transactions is often the one with the largest stake. Notable cryptocurrencies that rely on PoS blockchains include Dash and Tron.

3. Stablecoins

The third main type of cryptocurrency is stablecoins, which are designed to address the issue of volatility in the cryptocurrency market. Stablecoins are pegged to a stable asset, such as gold or the US dollar, and their value does not fluctuate as much as other cryptocurrencies.

The benefit of stablecoins is that they are much less volatile than other cryptocurrencies, which makes them a more stable investment. However, some people argue that stablecoins are not truly decentralized, as they are pegged to a centralized asset.

4. Utility Tokens

Utility tokens are a type of cryptocurrency that can be used to purchase goods or services on a particular platform. They are often referred to as “app coins” or “protocol tokens.”

The benefit of tokens is that they have a use case, which gives them a potential value. However, the main risk with tokens is that their value is often very speculative, as it is based on the future success of the platform.

Other Types of Cryptocurrency

In addition to the ones on this list above, there are other digital currencies, such as:

  • Mining Rewards: With this type of cryptocurrency, miners are rewarded for their efforts in validating transactions with a small amount of the cryptocurrency.
  • Transaction Fees: With this type of cryptocurrency, users are charged a small fee for each transaction that they make.
  • Initial Coin Offerings (ICOs): With this type of cryptocurrency, companies issue new crypto coins or tokens in order to raise funds for their project.

Which types of cryptocurrency use blockchain technology?

Bitcoin was the first cryptocurrency to utilize blockchain technology to record transactions. Meanwhile, the majority of cryptocurrencies utilize it. As an example, both the bitcoin and Ethereum network base their structure on blockchain tech.

Smart contracts are often built on top of blockchain networks. For instance, the ERC-20 standard for tokens is based on Ethereum’s blockchain. In short, many popular altcoins and stablecoins are ERC-20 tokens.

What’s the chance of society adopting a blockchain economy?

A blockchain economy is where assets and cryptocurrencies are widely used and accepted, eventually taking the place of current monetary systems and brick & mortar financial institutions. The chances are looking good for adopting the system globally. Gartner even predicts that 20% of large companies will use blockchain by 2024.

That being said, it’s still early days for blockchain technology and too soon to tell if society will be adopting one 100% anytime soon. However, it has the potential to change the way we interact with the digital world forever. It’s definitely worth keeping an eye on, though, as some experts are predicting that blockchain will radically transform the global economy in the future.

What is the cheapest digital currency?

The cheapest cryptocurrency is often the one with the lowest market capitalization and it fluctuates. Of course, “cheap” is a relative term. When compared to Bitcoin, almost every other cryptocurrency is relatively affordable. For example, Bitcoin’s price is around $30,371.87 at the time of this writing, while Dogecoin’s price is only about $0.087 (USD coin).

If you are a small business owner reading this post, your next question may be how to accept crypto payments. While accepting Bitcoin cash it’s not as simple as accepting credit card payments, there are a few different ways that you can do it.

The first option is to use a cryptocurrency payment processor, such as BitPay or CoinGate. These companies will take care of the complexities of processing crypto payments for you.

Another option is to use a cryptocurrency wallet that supports fiat currency conversion. For example, the Edge wallet allows you to seamlessly convert between Bitcoin and U.S. dollars.

Finally, you could also develop your own solution for accepting more crypto payments. This option is only recommended for businesses with the resources to do so, as it can be quite complex and time-consuming. However, it can really facilitate payments if you are serious about the idea.

Image: Depositphotos

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Holly Chavez Holly Chavez is a staff writer for Small Business Trends and has been a member of the team for 2 years. She is also a successful copywriter for marketing agencies and private firms. Holly has contributed to various publications and news websites and is a former entrepreneur and industrial engineer who has worked for two decades in the manufacturing and logistics industry.