Cryptocurrency decrypted (3): different types of cryptocurrencies
Cryptocurrency decrypted (3): different types of cryptocurrencies
Published March 12, 2023
Yannick Chatelain and Antoine Roche.
The first part of this analysis is here.
The second part of this analysis is here.
In a few steps, we propose to make cryptocurrency accessible to everyone.
After Blockchain is a Revolution, Smart Contracts, we invite you to discover the different types of cryptocurrencies currently in circulation.
Cybercurrencies around the world Data provided by Statista and Investing shows that the total number of cryptocurrencies has increased 75 times between 2013 and 2021, from just over 60 to over… over 10,400 cryptocurrencies.
As Statista notes, more and more investors were interested in this phenomenon at that time, and for good reason: between April 2017 and April 2022, the value of bitcoin increased 30 times! And before the widely publicized “cryptocrisis”, which contributed to the fall in supply and greatly worried – rightly or wrongly – the latter.
At the time of writing, there are 8029 currencies.
To have a comprehensive view of the offer and the most important cryptocurrencies by capitalization, exchange volume, etc., you just need to access the rating offered by Coingecko or Coinmarketcap. The top five most popular and, not surprisingly, you probably heard about them: Bitcoin (BTC), Ethereum (ETH), Teher (USDT), Binance Coin (BNB), USD COIN (USDC). If the figure remains significant, then the quantitative indicator decreases after reaching a historical maximum.
When you are interested in a cryptocurrency, it is important to know its purpose, its usefulness, and understand how it works in order to make informed decisions. That is why we offer you, in the next paragraph, a description of some of the prevailing categories.
We take the liberty of rating the stars according to the risk, which naturally varies according to the knowledge of the subject. An asterisk represents a lower risk; five stars represent a very high risk for a beginner, but is not fixed and will likely decrease as experience develops.
Cryptocurrencies: flagship categories Level 1 Cryptocurrencies (say layer 1) *
Tier 1 cryptocurrencies are used to execute financial transactions in a decentralized, fast and inexpensive way. They can be used to buy goods and services online, send money abroad, invest in long-term projects, and more. Cryptocurrencies also provide the ability to create programmable smart contracts that can simplify complex business transactions without the need for intermediaries.
example: BTC, ETH, BNB, MATIC, AVAX, XTZ, SOL…
Stablecoins are cryptocurrencies designed to maintain a stable value by being pegged to base currencies or assets such as gold or the US dollar. In fact, they are used to facilitate online financial transactions by offering a less volatile alternative to traditional cryptocurrencies, which is why stablecoins are more reassuring. They also allow you to quickly and inexpensively transfer funds without intermediaries. In addition, they can serve as a “safe haven” for investors during periods of high volatility in the cryptocurrency market.
example: USDC, USDT, BUSD, DAI…
memmonets (**** expert level)
Meme coins are a form of cryptocurrency that takes its name from its origins in internet meme culture. (ndla: a meme is a recognizable cultural element reproduced and transmitted by imitating the behavior of an individual by other individuals, the Oxford English Dictionary defines a meme as “an image, video, text, usually of a humorous nature, that is quickly copied and distributed by Internet users, often with little changes”. Example: click here They are actually used for activities such as fundraising, trading and speculation in unique and often humorous digital assets. Meme coins are usually based on existing Tier 1 blockchains such as Ethereum and can offer benefits such as decentralized ownership and digital scarcity However, they are also subject to high volatility and can be considered extremely risky.
For example: DOGE, SHIB, BONK…
DeFi and their cryptocurrency (**** expert level)
DeFi tokens are cryptocurrencies issued on decentralized blockchains that allow users to participate in various applications. They serve a specific purpose by providing control rights, allowing staking (a consensus mechanism called “Proof of Stake” (POS), which helps to ensure that transactions are reliable: verified and secure without the intervention of a third party: a bank or other intermediary) and providing liquidity and facilitate access to various DeFi protocols and services. DeFi tokens also enable decentralized borrowing and lending, trading, and asset management.
Example: CAKE, INSURANCE, SNX, YFI
Governance (DAO) and their cryptocurrencies… (****expert level)
A Decentralized Autonomous Organization or DAO (Decentralized Autonomous Organization) is an organization that has a mission and operates through a set of smart contracts. The latter establish and “offer” the rules of governance to the organization! In this sense, the Bitcoin network, while very stuttering in its infancy, “could be considered the first example of a DAO.”
Unlike a traditional organization, there is no hierarchy in a DAO! Nobody ! No management in the usual sense! There is no boss in the DAO who makes decisions or gives his approval… No! FORGET! It is an organization controlled by computer code and programs, making it completely autonomous. It only analyzes established smart contracts and stakeholder positions. Everything is then stored and accessed transparently on the blockchain, and more often than not, decisions are made in the DAO through proposals. If the majority of interested parties voted for the proposal, it is confirmed by the “matrix”. Dot ! Spoiler: This is theory, but in practice, DAOs are still in their infancy and evolving, but none of them are fully decentralized and autonomous yet.
The cryptocurrencies used by these DAOs (e.g. SDAO, UNI, AAVE, CRV, MKR, etc.) offer a variety of additional ways to exercise voting rights, and you should always refer to the company documentation to understand all the details.
Non-fungible NFT tokens (****expert level)
The NFT for a non-fungible token is a non-fungible and indivisible token; and yes, all this in one Token, rest assured, behind all these terms of the cryptoverse everything is simpler than it seems: this means that, unlike the so-called fungible asset, it is i.e. interchangeable with an asset of the same type, this type of token is unique!
It corresponds to the ownership of its owner, whether it be a virtual good, software, video games… or physical : real estate, artwork, etc. Like cryptocurrency, it is issued on the blockchain. , mostly Ethereum (ETH). And it is not divisible, as we said, which means that unlike most cryptocurrencies, such as Bitcoin (BTC), which can be divided into 100 million satochs, the smallest unit of account in Bitcoin), NFT cannot be…
example: CryptoPunks, BAYC…
metaverse and game corners (expert