Not so long ago, cryptocurrency sounded like something straight out of The Jetsons. A type of digital money that you can spend like real cash but isn’t regulated by any type of central authority? Is this 2021 or 2062?
Today, the concept has entered the household vernacular, and people around the world are talking about the different types of cryptocurrency they’re investing in. Are you interested in getting started but unsure where to start?
Beyond the ever-popular Bitcoin, there are many different types of digital coins to consider. Today, we’re breaking it all down and comparing the top ones that are worth your time and money.
What Is Cryptocurrency?
Before we get too deep into the different kinds, let’s take a step back and talk about what cryptocurrency actually entails. In broad terms, it’s digital money that’s largely intangible. It gets its name from the fact that users have to complete complicated cryptography to create and process transactions.
Although there are some instances of cryptocurrencies entering the physical world, most are purely virtual. The overarching feature that they share is a desire to operate free of government control and manipulation.
Encrypted Coins vs Crypto Tokens
To date, there are more than 10,000 different types of publically traded cryptocurrencies available. Collectively, their value has reached more than $1.4 trillion. In general, all of these currencies fall into one of two main categories:
- Encrypted coins
- Crypto tokens
Let’s break down the differences between these groups.
Any other digital coins beyond Bitcoin are called Altcoins. This stands for Alternative Cryptocurrency Coins, or Alternative to Bitcoin. Most of these coins are claiming to be new and improved versions of Bitcoin, though the latter remains the most popular and secure.
Some of the most common types of Altcoins include:
Like Bitcoin, these Altcoins work with an open-source protocol, built using the same basic framework. Another similarity is that most Altcoins also operate with a limited supply that dictating the coin’s production numbers.
For Bitcoin, that number is 21 million. Currently, only around 18.5 million of those have been mined, which leaves roughly 2.5 million. Once the supply is extinguished, the only way to create more Bitcoins is to change the original protocol.
While many Altcoins follow the same general structure of Bitcoin, there are others that operate more independently. The following Altcoins are self-supporting with their own unique protocols:
Encrypted coins are creating and shared via peer-to-peer networks. Crypto tokens don’t work in the same way. Rather, they form and distribute through what’s known as an Initial Coin Offering, or ICO.
Many small businesses and startups use ICOs as a source of crowdfunding. They can be useful for entities that need to raise capital but want to do so without involving intermediaries. While most ICOs are public, there are some private ones that only allow a select number of accredited investors to participate in the process.
There are a few different ways crypto tokens present. These include:
- Value tokens (e.g. Bitcoins)
- Security tokens
- Utility tokens
All crypto tokens represent an asset or specific use. In short, they’re individual units of value that organizations or projects develop on top of an existing blockchain network. When spent, they represent value yet they do not hold inherent value on their own.
Most Common Types of Cryptocurrency, Explained
Now that we’ve covered the basic differences between encrypted coins and crypto tokens, let’s dive straight into the most common types of cryptocurrency on the market today.
Of course, we have to start with Bitcoin. Since its inception in 2009, Bitcoin is now known as the world’s largest cryptocurrency based on market capitalization.
Bitcoins are created, distributed, shared, and stored via a decentralized ledger system called a blockchain. This makes it the direct opposite of fiat currency. Everyone has access to the public ledger, and it automatically updates every time a transaction occurs.
Since its inception, Bitcoin has inspired the development of thousands of other cryptocurrencies. Its value remains unpredictable, however, as its closely tied to public perception. In April 2021, it surged to a new all-time high of more than $63,000.
Bitcoin Cash first came on the scene in 2017, created as a spin-off or “fork” of Bitcoin. While the original Bitcoin block size is 1MB, it operates with an increased maximum block size of 32MB, increased four times from its original size of 8MB.
This allows users to process transactions much quicker than they can on the Bitcoin network. This usually translates into lower processing fees, as well.
Ethereum is an all-encompassing “app store” that’s home to a range of different global payments, digital currencies, and decentralized applications.
It’s an attractive platform for developers because they can retain control over their products, rather than relinquish it to middlemen, such as Apple. Ethereum operates via its own crypto token called Ether, which app developers and users can exchange. Its goal is to create a suite of financial products that anyone can access regardless of nationality or ethnicity.
It differs from its predecessors primarily because its mathematical equations are quicker to solve. This makes it easier for users to complete and record transactions, which makes payment processing more efficient. In addition, there isn’t a lifetime cap on the number of Dogecoins.
A former employee of Google named Charlie Lee developed Litecoin in 2011. In many ways, it’s very similar to Bitcoin, but there are a few notable differences.
First, Litecoin uses a newer and different algorithm, called Scrypt. Bitcoin, on the other hand, operates via its longstanding SHA-256 algorithm. Additionally, Litecoin can create a greater number of coins than Bitcoin, and it usually offers quicker transaction speeds, too.
Unlike most of the items on this list, Ripple isn’t based on a blockchain. Instead, it’s used mostly as a digital payment protocol for its associated cryptocurrency, called XRP.
Catering more to large-scale corporations than individual users, Ripple moves large amounts of money around the world. While these transactions would usually require sky-high processing fees and the involvement of intermediaries, companies can get around such regulations with Ripple.
One of the five original founders of Ethereum, Charles Hoskinson developed Cardano after disagreeing with the direction that the platform was taking. The team behind the cryptocurrency is comprised of leading cryptography experts, as well as industry-leading engineers and mathematicians.
Similar to Ethereum, Cardano seeks to establish decentralized financial products, staking itself as the world’s financial operating system. Though it’s still in its infant stages, its scientific and philosophy-driven backbone makes it an early standout.
Stellar was designed to facilitate money transfers, even those that extend beyond national borders. It runs on a fast and efficient open blockchain network that processes huge transactions between banks and investment firms almost instantaneously. It operates via a native currency called Lumens (XLM).
Jed McCaleb, the co-founder of Ripple, created Stellar in 2014. Its primary goal is to assist financial transfers in developing economies, where access to traditional banking and investment opportunities aren’t as readily available. Still, anyone who holds Lumens can use it to complete transactions with any currency.
Developed in China, NEO was formerly called Antshares. Like Ethereum, it facilitates smart contracts, or digital contracts, with a focus on helping users create and exchange agreements without using an intermediary.
What sets it apart from the better-known Ethereum? Its developers claim that NEO boasts an improved architecture, as well as more user-friendly smart contracts. It also includes digital assets and digital identifiers that make it easier to integrate the contracts in real-world applications.
Conversely, users must first learn Ethereum’s unique programming languages before they can create and share smart contracts on the platform.
Which Type of Currency Will You Invest In?
This list covered some of the most popular and well-known types of cryptocurrency, but it is by no means exhaustive. That said, have you found one that piques your interest?
Before taking the leap and investing, do a little more research to understand the nuts and bolts behind the platform you’re eyeing. You want to fully understand the risks and benefits associated with each type of digital currency as you move forward.
In the meantime, we can help you stay informed with the most up-to-date crypto news around. We can also guide you toward the closest Bitcoin ATM near you! Feel free to take a look around and contact our team if you have any questions.