Cryptocurrencies are digital currencies that live on a decentralized platform called the Blockchain network. Bitcoin was the first cryptocurrency and many alternatives emerged after Bitcoin’s introduction including Ethereum, Polkadot and Litecoin. A cryptocurrency is not regulated by governments or banks. Instead, their fate is decided by the community of its investors.
Cryptocurrency: Money without authority
We are all familiar with regular currencies like US Dollar or Euro which are actual physical money printed by a central authority, i.e. the national bank of a country. They are regulated by the government and their value depends on a lot of geopolitical, economical, or even societal factors. Cryptocurrencies on the other hand, are decentralized moneys that are created from the scratch and are not backed by any government or bank. They get their value from their communities of investors. Some cryptocurrencies have been invented to serve a purpose, such as facilitating the execution of smart contracts, or exchanging between multiple cryptocurrencies, or to serve as digital savings accounts.
The backbone of cryptocurrencies is the blockchain technology; a decentralized network on which the information is not stored in huge data centers, but distributed among nodes and users. The blockchain is not regulated by central authorities, it’s in fact run and decided by the community of people who are participating in its market. This strong technology empowers thousands of decentralized currencies in different ways. The first cryptocurrency was the Bitcoin, which still holds the highest market cap of the entire crypto market. Every other currency is basically an alternative to the Bitcoin, which is why they are called Altcoins! Cryptocurrencies are different from one another but they can all fit into two distinct categories: Coins and Tokens. The terms are often conflated but there are fundamental differences between them.
Coins vs Tokens
Imagine you want to find a place to live. You can build or buy a house, pay for the maintenance of your house and for its refurbishment, etc. But you can also rent a house and settle in an already constructed structure and cut on many of the responsibilities associated with owning a house. So is the case with cryptocurrencies! A coins has its own blockchain network and it’s similar to owning a house. Currencies like Bitcoin, Ethereum and Polkadot are coins because they have their own blockchain and regulations. A Token runs on another coin’s blockchains, doesn’t have to concern itself with being validated by methods like proof of work and pays a fee in return, which is similar to renting a house. A blockchain has to store value and validate transactions, and the developers have to keep upgrading and troubleshooting the network. If you don’t want the hassle of creating and maintaining an entire blockchain like Ethereum, you can create a token that runs on the Ethereum blockchain which is categorized as an ERC20 token. Chainlink (LINK), Tether (USDT), and Shiba Inu (SHIB) are examples of ERC20 tokens.
Platform tokens support a decentralized application or DAPPS on the blockchain. For example, Chainlink is an Ethereum-based decentralized token that is capable of interaction with off-chain data and is specialized at facilitating the generation and execution of smart contracts. Another example would be the Uniswap application which enables buyers to exchange between Ethereum tokens. Uniswap has its own token which is rewarded to people whom invest in their platform.
Security tokens act as a digital representation of ownership of a specific asset and live on the blockchain. They act as bridge between the world of cryptocurrencies and real-life assets like bonds, gold or car. So you might want to buy gold but don’t want to keep it in your house. A security token can replace that gold because it was specifically created for that amount of gold. For example, the Meridio platform allows its users to trade tokens that represent real-estate shares and pay in Dai.
Stablecoins are basically utility tokens that have stable values and are not volatile. On paper, a stablecoin must always be worth 1 USD and is considered to be a safe way of storing money, since its price is not supposed to fluctuate with time. You can exchange stablecoins for usual currencies like USD or other cryptocurrencies. Tether (USDT) and Dai are two of the most popular stablecoins on the market today.
Memecoins are cryptocurrencies that are inspired by popular memes and are mostly created as a joke. They are very popular in the crypto community and many celebrities have actually endorsed some Memecoins which further added to their popularity. Dogecoin was the first memecoin and was endorsed by people like Elon Musk and Snoop Dog. They are fun to play with, risky to invest in but high in potential, because you never know what celebrity might tweet about a memecoin and shoot its price to the moon!
A cryptocurrency is a decentralized digital money that lives on the blockchain platform. They are not backed by governments or banks, instead they get their value from their enthusiastic communities and their utility in the real or digital world. They mainly fall into two categories: coins and tokens. Coins have their own blockchain, while tokens live on another coin’s blockchain. Cryptocurrencies are not only a mere representation of money, but they have actual real-world value and can even act as digital savings accounts. The crypto market is more unpredictable than conventional markets but cryptocurrencies’ community along with their applications are growing every day. With the ongoing evolution of the internet itself into what’s called the Web 3.0, cryptocurrencies are beings assigned with more and more responsibilities and their bright future seems inevitable.
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