3 Types of Cryptocurrency and their Benefits



There are many different cryptocurrencies, ranging from Bitcoin and Ethereum to Dogecoin and Tether, making it difficult to get started in the crypto realm. However, these would be the top cryptocurrencies by market capitalization, which amounts to the total value of all the cryptocurrencies in circulation, so you can get your bearings.

What is Cryptocurrency?

A virtual currency that uses cryptography resources that can be transferred without the use of a banking or government centralized system. Cryptography refers to the complex encryption that allows the production and management of digital currencies on decentralized platforms, as well as a technique that keeps data secure and protected from illegal access. A common approach to decentralization goes hand in hand with this essential “crypto” aspect. It is common for cryptocurrencies to be built using code by teams, including issuing methods and other restrictions.

Types of Cryptocurrencies

There are three different types of cryptocurrencies that we use because of their benefits.

  • Bitcoin was the first-ever blockchain that was introduced to cryptocurrency.
  • Many new blockchains have been launched since Bitcoin was launched, and these are called altcoins. NEO, Cardano, and Litecoin are good examples of it.
  • The third type of cryptocurrency is dApps or Tokens. Bitdegree, Wepower, and Civic are good examples of it.

Bitcoin & Its Benefits:

You can think of it as electronic money that’s easy to transmit across borders. You can use it in exchange for a present, service, or item. That’s the concept. It is the same as money that we deposit in our accounts (EUR, USD, etc.). However, it is not physical; it is virtual or digital. It also has a decentralized management system, meaning that it does not depend on financial institutions or external parties to manage transactions. Because of its virtual existence, many people who are new to crypto investing frequently wonder how to buy Ethereum and bitcoin and from where?

Every transaction on the Bitcoin network happens between users directly, which is referred to as a P2P system. The blockchain facilitates this process. Bitcoin created a blockchain-based system that will allow users to transfer and acquire Bitcoin with no involvement from any external party. Consequently, it is not necessary for you to reveal who you are, since no one else is needed. Payments can be made without exposing your identity.

Bitcoin was the most famous and first-ever blockchain. It now controls over 45 percent of the market. Bitcoin is easier to sell than other cryptocurrencies. This makes it easier to exchange Bitcoin for cash. When Bitcoin began, no one could have imagined the future. Nobody expected that it would be the beginning of a vast technological revolution, but it actually was. The advent of cryptocurrencies marked a turning point in history.

How to Use it?

The transaction is validated and afterward added to the blockchain when someone transfers Bitcoin. The data contained in the blockchain is encrypted; anyone can view it, but only the Bitcoin owner has the capability of decrypting it. Every Bitcoin owner is granted a ‘private key,’ which they use to encrypt their cryptocurrency.

About Altcoins & its Benefits:

Then you have altcoins. You’ll find more than 1000 different altcoins out there right now! However, you should not be concerned by that amount; the large bulk is just modified versions of Bitcoin. That is why they are labeled altcoins.

However, it is important to keep in mind that not every altcoin is just a variation of Bitcoin. Others are vastly different from Bitcoin in terms of their goals and objectives. For Bitcoin, some cryptocurrencies employ alternative algorithms. For instance, Factom utilizes a Proof-of-Stake (PoS) altcoin. In PoS, no miners are involved. Instead, stakers are involved.

Like miners, holders are persons who verify transactions for a reward. However, rather than racing to be the first to validate a block, each one is chosen after the other to validate the block. Because not so many miners are trying to verify one block at the same time, this uses a lot less electricity. Instead, a single stake is assigned to each block.

Cryptocurrencies like Bitcoin are digital currencies, right? Well, NEO and Ethereum do not qualify as electronic currencies. They were instead created as large platforms for creating blockchain-based applications. NEO and Ethereum can be used to make new applications. Most of the time, the method for creating new cryptocurrencies is to base them on cryptocurrencies that allow developers to build apps, such as NEO and Ethereum.

How to Use it?

With Bitcoin, there is no need to involve a third party in direct funding. Still, smart contracts greatly reduce the need for third parties in various situations, like selling your home, paying utilities, or transferring shares at the stock market.

About Token & its Benefits:

Other blockchain-based tokens are not supposed to be used in the same way that money is. A token that represents a share in a blockchain or decentralized finance (DeFi) project, for example, could be distributed as part of this new coin offering (ICO). The value of a security token is related to the worth of the company or project.

Some tokens provide a specific function. For instance, Storj tokens enable users to share files via a decentralized network, while Namecoin enables a decentralized DNS server for Internet addresses. These are called Utility tokens.

It is still possible to verify a token transaction through nodes on NEO or Ethereum since dApps are built on other blockchains (such as NEO and Ethereum). As a result, the transaction fee will still be paid in Ether or NEO and not in tokens.

Crypto users are well aware of these differences. Traders and non-technical investors may be unaware of them because all types of tokens tend to trade in the same way on crypto exchanges.

How to Use it?

These are used in decentralized applications (dApps), which are software developed using blockchain technologies such as NEO and Ethereum. dApps use tokens because they make use of smart contracts.

Final Words

After reading this article, we hope that you have a much better understanding of the most prominent cryptocurrencies in terms of trade and technology, as well as the different types of cryptocurrencies. You also should be aware of the benefits of each type of cryptocurrency and their differences. Nowadays, people are making a lot of money by investing in these blockchains.