Types of cryptocurrencies. Coins and tokens
In this lecture, we are talking about the main types of cryptocurrencies.
All types of cryptocurrencies can be divided into three main types:
bitcoin,
altcoins (including stablecoins),
tokens (including DeFi tokens and NFTs)
Each of these groups has its own characteristics.
By themselves, altcoins and bitcoins are not ordinary money, but a complex digital product with its own cryptocode and encrypted record. To obtain the status of money, albeit digital, they perform a complex scheme of transformation and processing using special technologies.
Let’s take a closer look at the types of cryptocurrencies and their differences.
Bitcoin is the first cryptocurrency that is still the leading digital coin by market capitalization. This is a payment system that allows you to make transactions with other persons without the need for intermediaries in the face of a bank or other financial institution. This cryptocurrency is often referred to as a digital alternative to fiat currencies and gold.
Altcoin is any cryptocurrency that appeared after bitcoin, whose share in the crypto market reached about 60% in 2022
The basic structure of bitcoin and altcoins is the same, because they use a common code. But bitcoin has certain disadvantages. For example, the algorithm for creating new blocks and confirming transactions of the first cryptocurrency requires a lot of energy. The creators of altcoins are trying to get rid of them.
https://www.tradingview.com/symbols/CRYPTOCAP-BTC.D/
Others solve tasks that are different from the tasks of observation:
For example, Ethereum, the world’s first programmable blockchain for developers to build and deploy decentralized applications (DApps) and smart contracts;
The IOTA cryptocurrency is designed to be the next level of data transfer and transaction settlement for the Internet of Things (IoT) and the machine economy.
As you might expect, all altcoins can operate regardless of their capabilities using ledger market share (DLT).
Stablecoins are altcoins, the course of which is backed by something. For example, fiat currencies (US dollar, euro, etc.) or commodities (such as gold) or other cryptocurrencies come across to sharply reduce price volatility. Top stablecoins for 2022 include Tether, USDC and Binance USD.
A token is the nature of a certificate that guarantees a company’s obligation to its owner. This is a kind of analogue of shares that are traded on stock exchanges, but only in the world of cryptocurrencies.
Unlike bitcoin and altcoins, tokens are not affected on their own, because they are often work on some blockchain (more often ethereum, tron, solana) and are managed through smart contracts. Access to tokens usually requires special software.
There are several types of tokens:
capital tokens — securities (shares) of the company;
utility tokens — used by online platforms and can represent points, in-game currency, reputation, etc.;
asset-backed tokens are a kind of liability for services or goods.
One of the new promising applications of blockchain tokens is decentralized finance (DeFi).
DeFi is an independent financial ecosystem open to all users. In it, participants interact with each other directly, without intermediaries — banks, credit organizations and others. This makes transactions faster and cheaper.
https://coinmarketcap.com/ru/view/defi/
First of all, DeFi projects are blockchains, distributed ledgers for recording transactions. Currently, most DeFi services run on the Ethereum network due to its capabilities and popularity among developers. However, DeFi activity is also growing on other blockchains.
Next come digital assets, i.e. DeFi tokens that represent value that can be sold or transferred on the blockchain network.
The next component is wallets: software user interfaces for managing assets stored on the blockchain. With a non-custodial wallet, the user is in complete control of their funds through private keys.
Benefits of DeFi:
DeFi tokens allow transactions between users using multiple computers of other participants.
Decentralized finance (DeFi) works on the basis of smart contracts, which eliminates the human factor.
The DeFi marketplace is based on source code. All transaction information is always available to any user. Therefore, such applications will easily pass an honest audit.
Disadvantages of DeFi:
Blockchains are slower than their centralized counterparts, which results in the creation of additional applications.
Risk of user error. DeFi applications shift the responsibility from intermediaries to the user. Designing products that minimize the risk of user error is especially difficult when products are deployed on top of immutable blockchain networks.
Ecosystem instability. Finding an app can be a daunting task, users need to have certain skills to find the best one.
What does coins mean?
A coin is a cryptocurrency that has its own blockchain, usually created by developers from scratch or through a fork.
Coin is often used as a payment system. How they are used:
1. Translations. Fast, cheap and cross-border. This is a good distinguishing feature of the crypto from traditional payments.
2. In a number of countries, cryptocurrency can be used to pay for goods and services.
3. Coins are also a good trading tool. Here already according to your desires: Trading or investments.
What is the difference between a token and a coin
The main difference between coins and tokens is the way they are created. Coins have their own independent blockchains, while tokens operate on the basis of already existing platforms.
You can draw an analogy with a house. Blockchain is the foundation. In this case, the coin is the house itself, and the token is the superstructure of an already built building.
Coin
A virtual coin that can be used in the same way as fiat money.
It is used as virtual money, through which you can buy goods and services, make transfers.
Has its own blockchain.
It can be compared to fiat currency. This is the same money for which various goods and services are sold and purchased.
Emission occurs only decentralized.
Token
Virtual digital asset.
It can be used for payment, but the main purpose is to provide certain rights, access to services.
There is no blockchain of its own — tokens work on the basis of existing platforms.
It can be compared with a subway card. Tokens provide access to a specific service, can be purchased for money, exchanged like goods. The use of tokens involves narrowly focused actions that differ depending on the purpose and functionality.
Emission could be centralized and decentralized.
Summing up, now we understand that tokens and coins are completely different things. They at least differ in the method of creation and scope. Tokens are made much easier — just take a ready-made template on one of the platforms. This will not work with coins, it will be necessary to develop a new platform or change the code of an existing one.