Heard people talking about different types of coins in crypto but not sure what they are? In this blog we will simply define and explain them.
A Simple Explanation Of The Different Types Of Coins In Crypto
Crypto coins are a form of decentralized digital money. Technically there are three different types of coins – Bitcoin, Altcoins and Stable coins. Bitcoin was the world’s first cryptocurrency. Altcoins are cryptocurrencies other than Bitcoin e.g. Ethereum, Ripple or Cardano. Stable coins are cryptocurrencies pegged to a traditional asset like the US dollar or gold to make them less volatile. And then there are tokens – but they are not technically coins. Read on!
Bitcoin became the world’s first cryptocurrency in 2009. It is the unit of currency on the Bitcoin blockchain and was born from the desire to create a decentralized currency free of government control that could be traded worldwide. Transactions are verified by a consensus mechanism known as proof of work. Bitcoin miners use vast amounts of computing power, solving complex cryptographic problems to verify transactions. In 2022, they are rewarded with 6.25 bitcoins for each block they mine. This will halve to 3.125 bitcoins by 2024 with the total supply of Bitcoins capped at 21 million. The finite number of Bitcoins drives their value and is one factor in Bitcoin’s rise from zero at launch to $1 in 2011 to a high of nearly $67,000 in October, 2021.
An altcoin is an “alternative coin” – any cryptocurrency other than Bitcoin. Ethereum is the most valuable and widely traded altcoin but Ripple, Cardano, USD Coin, Polkadot and Stellar are other alt coins. Like Bitcoin, many of them, such as Ethereum and Ripple are the fundamental cryptocurrencies of their own blockchain. Others, such as Namecoin and Dogecoin were forked from Bitcoin. Most altcoins either already use or are migrating to an alternative consensus mechanism known as proof of stake. It uses much less computing power but requires users to have a significant stake in the cryptocurrency. To validate Ethereum 2, you need an initial stake of at least 32 ETH ($56,000 in September, 2022) but you can make 10% annually. Most other altcoins won’t be anywhere near as lucrative to validate. The price of Ethereum is second only to Bitcoin but unlike Bitcoin, it does not have a limit on its total supply. It does however restrict annual supply to 18 million coins per year. But some other altcoins do have a finite supply of coins. These include:
- Binance Coin (BNB)
- Cardano (ADA)
- Ripple (XRP)
- Avalanche (AVAX)
- Algorand (ALGO)
- Litecoin (LTC)
The third type of coin is stable coins. They are a hybrid of cryptocurrencies and traditional assets – either fiat currencies or commodities. Stable coins are usually “pegged” to either the US dollar or gold. This makes them less volatile as well as more attractive and functional for everyday usage. The most well known stable coin is Tether which is pegged to the US dollar and represents around 90% of all stable coins traded. Tether tokens can be purchased on a variety of blockchains including Ethereum, Algorand, Avalanche, Omni and Solana.
Others common stable include:
- Dai (DAI)
- Binance USD (BUSD)
- USD Coin (USDC)
- TrueUSD (TUSD)
- Pax Dollar (USDP)
- Tether Gold (XAUt)
- Gold Coin (GLC)
Tokens aren’t technically coins. Rather they are the representation of an asset and are not designed for use specifically as a currency, although they may be traded. Tokens are created on top of existing blockchains rather than having their own. Think of them like chips at a casino. They have a value but you can’t use them as a mode of payment. Unlike coins, tokens may come with additional functions. Security tokens represent a stake in a company, governance tokens give the holder a say in how that company is run. While non-fungible tokens represent the ownership of a unique digital asset. Occasionally, tokens can become coins if a project moves to its own blockchain with its native cryptocurrency as happened with Binance Coin (BNB) and Tron (TRX)
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