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What Is Cryptocurrency? Otherwise Known As Crypto!

Crypto or cryptocurrency is a digital currency that uses cryptography to secure funds. This type of encryption makes it hard to counterfeit and avoid double-spending. Many cryptos are decentralized and use blockchain technology. They work like peer-to-peer networks and computers on the network enforce and update a distributed ledger. Cryptocurrencies are not issued by any central authority which provides them with immunity to government interference.

Popular Cryptocurrencies

Bitcoin is the most popular cryptocurrency by a large margin followed by other alternatives like Ethereum (ETH), Litecoin (LTC), Cardano (ADA), Polkadot (DOT), and Solana (SOL).

Types of Cryptocurrency

Below are three broad types based on the utility of the cryptocurrency.

  • Currency – This category of crypto can either be a currency that’s intended to replace fiat money to purchase goods and services. Bitcoin is a great example. Or the coin or token is used strictly for transacting on the blockchain. Ethereum fits into this area.

  • Asset – Stable coins can be seen as an asset because the value is derived from the value of an external asset like fiat or real estate. For example, USDC derives its value from the US dollar.

  • Venture Capital – These types of cryptocurrencies are created to finance special projects. These projects can be seen as startup companies who are out to create solutions to solve problems from democratizing finance (DeFi) to decentralizing compute and storage infrastructure.

Coins vs. Tokens

Coins and tokens might be forms of cryptocurrency, but they actually serve different purposes. Coins are built on their very own blockchain and are intended to be used as a form of currency. For example, Bitcoin (BTC) is a cryptocurrency based on the bitcoin blockchain.

Tokens are not considered currency in the traditional sense. It’s a programmable asset that allows for the creation and execution of smart contracts but they can also be used to fundraise for things like crowd sales.

Advantages Of Crypto

  • Centralized intermediaries, such as banks and monetary institutions, are not needed to transact, store, and/or secure crypto assets.

  • Available to all and does not discriminate.

  • Peer-to-peer cryptocurrency transfers are faster than standard fiat money transfers.

Disadvantages Of Crypto

  • They leave a digital trail

  • Popular tool with criminals

  • Exchanges and wallets can be hacked.

  • Price volatility.

Reference Sources

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