What Are The 3 Different Types Of Cryptocurrencies?

When it comes to cryptocurrency, there are many different options and asset types. It all started with bitcoin, the first decentralized digital currency. Any other cryptocurrency other than bitcoin, is sometimes called an ‘altcoin.’ There are more than 10,720 altcoins and many different categories, such as stablecoins like USDT or DAI
DAI
, which have already gained popularity in Asia and Latin America.

Bitcoin
BTC
, launched by the anonymous creator Satoshi Nakamoto in 2009, was built as a payment system in which value is sent directly from one party to another without intermediaries. It was inspired by a group of privacy activists known as cypherpunks. Today, people may see bitcoin as a way to store value or the cryptocurrency best suited to long-term savings. Nakamoto’s creation was the first successful prototype of a digital currency based on cryptography without third parties to rely on.

Bitcoin Is Digital Gold

Because bitcoin is scarce and suitable for international savings or transfers, some people call it digital gold.

Plus, the Bitcoin network uses a proof-of-work mechanism that ensures someone needs to perform computational work that can be easily verified to participate in bitcoin mining. Think of it like mining gold; that’s how new coins are made. According to the network protocol, only 21 million bitcoin can be mined. The main goal of PoW is to secure the public record and prevent spam across the network.

Bitcoin mining is a central element of its security and distribution. The price of bitcoin is determined by supply and demand dynamics, not any particular organization or board of bitcoin miners. Because no one is in charge of all aspects of bitcoin, it is considered the most decentralized cryptocurrency to date.

Stablecoins Help Crypto Users Avoid Market Volatility

Stablecoins are a type of altcoin that usually have a value pegged to another asset, like dollars. In a market of volatile assets, stablecoins offer (relative) stability because they’re tokens that crypto exchanges usually price in a predictable way. That value may be, for example, one USDT token, the most popular among these products, for one U.S. dollar. Tether
USDT
issues this. The stablecoin’s value may be relative to euros or even commodities like gold.

There are different stablecoin models, including both algorithmic stablecoins like DAI, backed by loans on the Ethereum
ETH
network, and fiat-collateralized stablecoins like USDT and USDC
USDC
, issued by Coinbase and Circle. So far, the most popular stablecoins are those issued by a central authority with USD-denominated liquid reserves, which means they are not as decentralized as bitcoin. It’s also much more common for people to use stablecoins on crypto exchanges than it is for stablecoins to be used in peer-to-peer transactions or savings. However, in developing nations, many people use stablecoins as a USD proxy due to the booming demand for USD-denominated products.

In the 2022 Geography of Cryptocurrency Report, Chainalysis stated that 34% of Venezuela’s retail P2P transactions settled through USDT, with Argentina having a close 31%. Other countries where stablecoins were popular included Turkey, Lebanon, South Africa, Nigeria, and Kenya. Inflation was the leading driver behind local stablecoin usage in all these examples. Now, stablecoins and P2P markets enable people to avoid the challenges related to their local currency inflating, all with much less volatility than the bitcoin market.

Altcoins Offer Business Opportunities

Countless blockchain developers and entrepreneurs have created a myriad of cryptocurrencies inspired by bitcoin’s example. The most popular altcoin is ether, the native token from the Ethereum network, which recently switched from bitcoin’s PoW model to a proof-of-stake model instead.

Ethereum was created in 2014 by Vitalik Buterin, a Canadian-Russian developer who was himself an early Bitcoin adopter. The project has grown to include hundreds of organizations and thousands of individuals now participating in the Ethereum ecosystem. Most people turn to altcoins for business opportunities, including trading and arbitrage, issuing startup equity, or even managing real-world assets like real estate or commodities.

Altcoins are not usually considered rare, at least not yet, because their supply fluctuates based on the organization or individuals that launched the token. And yet Ethereum inspired dozens of altcoin networks catering to business use cases, like Tron, Avalanche
AVAX
, and Cardano
ADA
. There are many different altcoins in the market. Some, like dogecoin, even started as jokes. Still, among them, there are a variety of use cases and tools, growing in influence on the overall crypto market and ever-increasing liquidity through crypto exchange platforms.

Whether you’re looking to use cryptocurrency for international transactions, savings that can offer a hedge against traditional markets, or day trading and startup opportunities, you can find the right cryptocurrency to suit your needs. Bitcoin, stablecoins, and altcoins are the three main categories of digital assets that cover a wide variety of use cases.