A cryptocurrency is a digital or virtual currency that is secured by cryptography, making it almost impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology. Cryptocurrency isn’t just a digital asset, each cryptocurrency has its own use case and utility.
The word “crypto” literally means concealed or secret. “Cryptography” means “secret writing,” the ability to exchange messages that can only be read by the intended recipient. In cryptocurrency, cryptography guarantees the security of the transactions.
These are the key features of cryptocurrency:
Anonymity: Transactions are tied to a random sequence of characters and not to the owner’s identity, including personal or company data. A recipient wallet address would look something like this: 1CvBMSEWetqTFn5Au4lnnr4GFg7xJaNEOPN9
Security: Cryptocurrencies can be stored in virtual wallets secured with a private key. Only the holder can access the funds.
Fast settlement times: It is much faster sending assets with cryptocurrencies than sending money cross border or through cheque.
No centralization: There is no central authority that can control the cryptocurrency transactions.
Irreversible transactions: Transactions can’t be reversed and if there is a mistake made in entering the recipient’s address details, the asset will be lost because there is no organization that can help with the mistake.
Finite supply: The vast majority of cryptocurrency coins have a limited supply. For example, Bitcoin will only ever have 21 million Bitcoin. When cryptocurrencies have growing demand with limited supply, this makes the price go up.
Cryptocurrency use cases and utility
You can think about each cryptocurrency as a project and individual cryptocurrencies can have many use cases.
Some cryptocurrencies act as a foundation for other cryptocurrency projects to build dapps, or decentralized applications. Dapps are different from regular mobile and web apps because they allow people to have more control over their data. Traditional apps are managed by a central authority and decide how user data is used and stored.
Ethereum has a few thousand dapps on the blockchain while Cardano, Solana, and Binance Smart chain act as a foundation for other cryptocurrency projects to build on.
Here are some examples of different problems cryptocurrencies are trying to solve:
- Vechain is a blockchain-enabled platform that aims to improve the efficiency, transparency and traceability of supply chains. It was built to enhance business processes and supply chain management.
- The Sandbox is a virtual “play-to-earn” metaverse game where users can be creators and players at the same time. Various NFTs and other digital assets can be bought and sold on this platform.
- Cardano was designed with a focus on scalability, sustainability, and interoperability. It aims to solve the problems associated with current cryptocurrencies like slow transactions and high fees.
- Chainlink allows projects to access off-chain data. Being able to access off-chain data opens up smart contracts and the entire blockchain ecosystem to a wide range of amazing functions.
Different Types of Cryptocurrencies
While there are thousands of cryptocurrencies, these are a few major categories to be aware of:
Payment currencies: These assets are mainly used for payments, including buying goods or paying for bills. Some payment currencies include Bitcoin, Litecoin, Dash, and Monero.
Blockchain economies: These blockchain platforms that allow you to make your own digital assets, decentralized applications, and other things on their platform. Some examples include Ehereum, EOS, and NEO.
Privacy coins: Some cryptocurrencies were developed for the purpose of privacy. With privacy coin transactions, only the sender and receiver know the number of coins transacted. Privacy coins include ZCash, Monero, and PIVX.
DeFi cryptocurrencies: DeFi stands for decentralized finance, which is a system where people can access financial products directly on a blockchain network without a centralized body like a bank or brokerage. DeFi cryptocurrencies include SparkPoint, Compound, and Maker.
Exchange tokens: Many exchanges where cryptocurrencies are traded have their own crypto token. Examples of exchange coins include Binance (BNB), Kucoin (KCS), and Bitmart (BMX).
Stablecoins: These coins hold the value around $1 US to avoid volatility like other cryptocurrencies. Someone may want to keep stable coins on exchanges so they can buy cryptocurrencies at the right time without worrying about the fluctuation in value while they’re waiting. Examples of stablecoins include USD Coin, Paxos, and Dai.
Tokens: Many platforms have their own token that can be used within the platform in different ways. For example, the Brave browser uses the Basic Attention Token (BAT) for browsing rewards or tipping creators. Other examples include Theta, Enjin, and Swipe.