What are the 4 types of cryptocurrency
Introduction: What are Cryptocurrencies?
Cryptocurrencies are digital currencies that use encryption techniques to regulate the generation of units of currency and verify the transfer of funds. They are decentralized, meaning they are not controlled by any central authority, nor is there a single point where they can be hacked. The blockchain serves as a public ledger for all transactions in the cryptocurrency. Bitcoin is the first decentralized cryptocurrency to use blockchain technology.
Although cryptocurrencies are a relatively new phenomenon, they have quickly grown in popularity and value. The total market capitalization of all cryptocurrencies increased from $17 billion (£12.5 billion) at the start of 2017 to $704 billion (£478 billion) at the end of September 2017.
What are the 4 types of cryptocurrency?
The 4 types of cryptocurrency are;
- Utility,
- Payment
- Security
- And stable coins
1. Utility (What are the 4 types of cryptocurrency)
The utility type of cryptocurrency is more like a reward system. It is given out by the network and it can be used to receive services. The coins are not an investment opportunity, though they may offer some value in the future. Some examples of utility type of cryptocurrency are:
- Ethereum
- Bitcoin
- Litecoin
The investment type of cryptocurrency is more like a security. It can be bought and sold on exchanges for profit. Like the utility type, the coins offer no future value and are instead traded on speculation. The coins are not an investment opportunity and there is some level of risk involved in buying them.
2. Payment tokens (What are the 4 types of cryptocurrency)
These are type of cryptocurrency that seeks to be used for the payment of goods and services.
They can be classified as either centralized or decentralized, depending on their structure.
A centralised payment token would be the likes of Bitcoin, Monero or Ripple. Most centralised tokens have a single issuer, so they are usually not very liquid and can be difficult to use for everyday transactions. A decentralized payment token would be the likes of Ethereum or Litecoin.
These tokens typically have many issuers and many liquidity pools, which makes them easier to use.
3. Security Tokens (What are the 4 types of cryptocurrency)
What are Security Tokens type of cryptocurrency
Security tokens are a type of digital token that is backed by an external, tradable asset. They are digital representations of ownership in an asset, and are not dependent on a centralized third party to process transactions. Security tokens have been gaining traction as they provide more investor protections and regulatory compliance than other types of cryptocurrencies.
Security tokens can be traded on a secondary market.
While not all security tokens are cryptocurrencies, many use blockchain technology and token mechanics that are similar to those of other cryptocurrencies. Security tokens include Digital Asset Tokens (DATs) used on public Ethereum networks built on the ERC 20 token standard, as well as more traditional equity-based securities.
The most common types of Security tokens tokens are cryptocurrencies such as Bitcoin and Ethereum. However, there are also security tokens that represent equity in companies, digital collectibles (such as CryptoKitties) and many other types of assets.
Security tokens can be used to represent ownership of assets such as stocks, bonds, real estate, and even intellectual property.
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4. Stable coins (What are the 4 types of cryptocurrency)
What are stable coins type of cryptocurrency
Stable coins are a type of cryptocurrency that is designed to maintain a stable value. They are not as volatile as other cryptocurrencies and can be used for day-to-day transactions. This type of cryptocurrency is backed by assets such as gold, fiat currency, or other cryptocurrencies. This makes them more stable than other types of cryptocurrencies because they are less likely to fluctuate in value.
The first cryptocurrency to use a stable currency was DigiCash, in 1991. Its value was pegged at $1 USD and adjusted every three months.
Other Types of Cryptocurrency
- Exchange Tokens
- Privacy tokens
5. Exchange Tokens
What are Exchange Tokens type of cryptocurrency
Exchange tokens are a type of cryptocurrency that is used for trading purposes. They are not meant for payments or smart contracts. Exchange tokens are not backed by any underlying asset and they have no intrinsic value.
They do not have their own blockchain and they depend on other platforms to function.
Exchange tokens use different mechanisms to trade, such as: –
- Market order: when traders place buy and sell orders in the same asset at the current market price.
- Limit order: when traders specify a particular price for an asset that they want to buy or sell and wait for it to be filled.
- Stop limit order: when traders specify a particular price for an asset and a stop
- loss level and wait for it to be filled.
- Bridging order: when traders place buy and sell orders in two different assets at the same market price
6. Privacy tokens
What are Privacy tokens type of cryptocurrency
Privacy tokens are cryptocurrencies that focus on privacy and anonymity. They are designed to make transactions untraceable, while still being able to be verified as legitimate. The most popular privacy token is Monero, which was launched in 2014 and has a market cap of over $3 billion USD. Privacy coins are built on blockchain technology, which allows for transactions to be made anonymously and without the need of an intermediary like a bank or a credit card company.
The most important privacy-focused coins are Monero and Dash. Monero is an open-source decentralized cryptocurrency that focuses on privacy and anonymity. It was launched in 2014, has a market capitalization of over $3 billion USD, uses a unique cryptonote algorithm which makes it ASIC resistant. The transaction fees are also minimal on the platform.
7. Non-fungible Tokens
What are Non-fungible Tokens type of cryptocurrency
Non-fungible tokens are a new type of cryptocurrency that have been introduced with the advent of blockchain technology. These tokens have their own unique history and value and cannot be substituted by another token or transferred to another account. Examples of non-fungible tokens include digital collectibles, shares, and gaming items.
Non-fungible Tokens (NFTs) have been adopted by a variety of companies over the last few years because they offer greater security and transparency than cryptocurrencies like Bitcoin. Many organizations are now using NFTs in their projects because they’re easier to trade than cryptocurrencies, more stable than securities, and can be used in different ways. NFTs provide greater security and transparency by providing a unique digital asset that can be tracked over time. Unlike cryptocurrencies which can only be tracked by the transactions in their blockchain, NFTs have their own separate trackable history. This is beneficial for collectors and investors alike
Conclusion: What Are The 4 Types of Cryptocurrency
We have discussed the four types of cryptocurrency in detail. It is important to understand the difference between these types to make a better investment decision.
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