There are many types of cryptocurrencies. In this article, we will discuss the most popular types. Each type has its own unique characteristics and advantages. 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, as well as how to accept this digital currency as payment.
How many different types of cryptocurrency 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 crypto asset price tracking website coinmarketcap.com.
While you’ve probably heard and seen the most of Dogecoin for a while, thanks to gregarious Tesla CEO Elon Musk, the most popular form of this digital currency are Bitcoin and Ethereum. You will typically see these two forms of digital currency reign at the top of the cryptocurrency market list in terms of highest market capitalization.
How to Choose the Right Type of Digital Assets and Cryptocurrency
Acquiring digital assets and cryptocurrency is one of the most important investment decisions you can make. With so many different types of digital currencies available, it can be difficult to choose the right one. Moreover, when it comes to choosing the right type of cryptocurrency, you need to consider many factors.
First, do your research. This is probably the most important tip. Don’t take anyone’s word for it when it comes to assets and cryptocurrencies. Many frauds and scams abound, so do your research thoroughly before making a decision.
Here is some other factors things you should consider when choosing the right type of cryptocurrency for your needs:
- Know the purpose of money: Not all cryptos are the same. Some are more secure than others. Some have faster transaction times. Some are more private than others. Consider your needs before choosing crypto assets.
- Stick with a higher currency: In general, it is advisable to stick to the more expensive currencies. They are more likely to be around long term and less likely to be hacked or otherwise compromised.
- Know how it compares and converts: Ask yourself questions like how do crypto assets compare to others in terms of price and market capitalization? How easy is it to convert the currency into other types of assets, such as silver or gold?
- Volatility: Be prepared for market volatility, especially when it comes to crypto. Also be aware that crypto assets have less liquidity than other types of conventional financial assets. Therefore, it is good to know your risk tolerance.
- Consider market capitalization: The market capitalization or market capitalization of a cryptocurrency is the total value of all the coins in circulation. It is a good indicator of the success of a project.
Different types of cryptocurrency
Not to be confused with individual cryptocurrencies, of which you saw SO many cryptocurrencies earlier, are the four main types on this list. These four come with their own bag of benefits, risks, and goals. 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 started with Bitcoin. It processes transactions through the blockchain which uses a process known as Proof of Work or PoW for short.
When a transaction is made, it is broadcast on the network and miners compete to validate the transaction by solving complex mathematical problems. The first miner to solve the problem adds the transaction to the blockchain and is rewarded with a small amount of cryptocurrency.
The main advantage of PoW is that it is very secure, as it is very difficult to attack or manipulate the network. However, PoW can be very energy-intensive, as miners must 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 solve the power intensity problem 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 highest stake) is chosen to validate the transaction.
The main advantage 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 claim that PoS is not as secure as POW because the person validating the transactions could be more easily manipulated or attacked. Additionally, PoS can be quite centralized, as the person validating transactions is often the one with the biggest stake. Notable cryptocurrencies that rely on PoS blockchains include Dash and Tron.
The third main type of cryptocurrency is stablecoins, which are designed to solve the problem 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 advantage of stablecoins is that they are much less volatile than other cryptocurrencies, making them a more stable investment. However, some people claim 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 “application coins” or “protocol tokens”.
The advantage of tokens is that they have a use case, which gives them potential value. However, the main risk with tokens is that their value is often highly speculative, as it is based on the future success of the platform.
Other types of cryptocurrency
In addition to those in 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 cryptocurrency.
- Transaction fees: With this type of cryptocurrency, users pay a small fee for each transaction they make.
- Initial Coin Offerings (ICO): With this type of cryptocurrency, companies issue new cryptocurrencies or tokens in order to raise funds for their project.
What types of cryptocurrencies use blockchain technology?
Bitcoin was the first cryptocurrency to use blockchain technology to record transactions. Meanwhile, the majority of cryptocurrencies use it. For example, the Bitcoin and Ethereum networks base their structure on blockchain technology.
Smart contracts are often built on top of blockchain networks. For example, the ERC-20 standard for tokens is based on the Ethereum blockchain. In short, many popular altcoins and stablecoins are ERC-20 tokens.
What is the chance of society adopting a blockchain economy?
A blockchain economy is one where assets and cryptocurrencies are widely used and accepted, eventually taking the place of current monetary systems and physical financial institutions. The chances of adopting the system globally are good. Gartner even predicts that 20% of large companies will use blockchain by 2024.
That being said, it is still early days for blockchain technology and too early to tell if society will adopt one 100% anytime soon. However, it has the potential to forever change the way we interact with the digital world. Definitely worth keeping an eye on, because some experts predict this 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. Compared to Bitcoin, almost all other cryptocurrencies are relatively affordable. For example, Bitcoin’s price is around $30,371.87 at the time of this writing, while Dogecoin’s price is only around $0.087 (USD coin).
If you are a small business owner reading this article, your next question might be how to accept crypto payments. While accepting bitcoin cash isn’t as easy as accepting credit card payments, there are a few ways to do it.
The first option is to use a cryptocurrency payment processor, such as BitPay or CoinGate. These companies will handle the complexities of crypto payment processing 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 US Dollars.
Finally, you can also develop your own solution to accept more crypto payments. This option is only recommended for companies with the necessary resources, as it can be quite complex and time-consuming. However, it can really make payments easier if you’re serious about the idea.
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