Let's stop looking at prices and charts and take the opportunity to invest a little bit of our time in learning about those cryptocurrencies that we are investing our money in. In this article, I want to talk about the different types of cryptocurrencies.
Source: Designed by myself using XMind
Why Should You Care?
First, because you should "Never invest in a business you cannot understand", Warren Buffett. I believe that understanding the different types of cryptos can help you decide which ones have a better chance of surviving and thriving.
Second, Most Altcoins are Shitcoins
At the time of writing this article, there are 1,564 cryptocurrencies listed on coinmarketcap.com. I think we can all agree that most of them will perish eventually. Bittrex is delisting about 80 coins this month. I am sure many more will follow. Unfortunately, most altcoins have very little to offer. They have ridden the hype and the hype is over. Only solid projects shall survive and thrive.
Therefore, if you are planning to invest in cryptos, you better pick those projects that are likely to stay. To do that, we need to understand the different types of tokens because that would help us study them and determine the characteristics they need to succeed. I am giving a brief introduction here to the different types, and I am planning to examine each type in more details in future posts.
Not All Cryptocurrencies Are Actually Currencies
This is the first thing you need to understand about cryptocurrencies. Not all of them are actually currencies. In fact, currencies are only on kind of tokens, as you will see very soon.
You may ask: Then, why do we call them that? It's simple. Bitcoin is a cryptocurrency and the whole class of assets got named after it. IMO, we should call them a more general name like crypto assets or crypto tokens. This is very important because it means that not all cryptos should be like Bitcoin to succeed. The required set of attributes is different for each type of crypto assets.
Let's Cut To The Chase!
I have surveyed many cryptos projects, and I think we can classify them into seven major types. Of course, under each type, there are many sub-categories. The major types I have found are:
1- Currencies
Those are intended to be digital money. They are similar to your fiat money (like USD and EURO) but with many extra features. Some of them target specific markets and some have special powers like privacy. Of course, Bitcoin is the prominent example of this type. Some other examples include:
- Litecoin
- Monero
- Dash
- Zcash
- IOTA
- Bitcoin Cash, Gold, et al.
- Nano
- PIVX
ِ2- Platforms
Initially, the blockchain technology was created for Bitcoin. However, once people started to realize the benefits of the blockchain technology, they started to think of many other uses for it. Unfortunately, they faced a problem: building a blockchain can be very difficult, and that was a deal breaker for many projects.
The purpose of cryptocurrency platforms is to make the blockchain technology available to whoever needs it. They allow you to create your own crypto token on top of the platform without needing to tackle the challenges of building your own blockchain. Most of these platforms provide additional features like smart contracts.
The most obvious example for such projects is Ethereum. Other examples include:
- EOS
- NEO
- Cardano
- Waves
- Lisk
- Stratis
- Nxt
3- Asset-backed
Tokens of this type are connected to physical real-world assets. Each token might represent a gram of gold or silver, a barrel of oil, a fiat currency, real estate or even a work of art. For example, each USDT represents one U.S. Dollar. An interesting example was the published recently by @wavesplatform, where an entrepreneur tokenized himself!
Source: designed by myself :)
The term "asset tokenization" refers to the process of creating a digital token to represent some physical asset. This type of assets is becoming very popular because it is much easier and cheaper to trade a digital token than to trade the physical asset. Some examples of such tokens:
- USDT
- Power Ledger
- DigixDAO
- Dinarcoin
To Be Continued...
There are four more types to go, but this has become too long already. So. I will stop here and continue in part 2, God willing.
If you liked this article, please upvote, follow and resteem. Please, share your thoughts in the comments too. I usually upvote good comments. However, do not spam. You will probably be flagged.
Re-steemed :-)
Thank you, my friend.
You’re welcome!
I like how you pointed out, that not every crypto currency will survive. Beside the scams, a lot of them have in my opinion no greater use on the long run. Mostly they show that it can be done decentralized, which in fact is really great, but doesn't represent real world needs. I don't want to judge any specific coin, but no matter what, we will not have thousands of different coins for our lives in different situations.
Thank you for helping others to learn the difference between these types.
Thank you, @harktheshark for your thoughtful comment.
I like your reasoning. It is important to determine which project would really benefit from the blockchain technology, and which ones are riding the hype!
Thanks for this post. I only have a limited investment in altcoins and I choose for projects I understand but this post helped me to put in some kind of categorization in this big spaghetti of crypto's.
Looking forward to part 2!
I am glad you liked, @pieter87.
Once you understand the big picture, it becomes easier to determine which type of cryptos has a better opportunity.
I spend hours, days, weeks, and even months, researching a coin and platform or project before investing, just makes sense to know what you getting into, with regards to white papers, people involved, use case, ethos, road maps, current market share, all of those play a huge role in the success or demise of a coin.
So I do enough research and support projects I believe in. That way you don't jump ship for no reason and you also know when to throw in the towel.
stay blessed, long live crypto :-)
Good for you. I do the same. I also recommend that you spend some time to understand the big picture too.
I guess mist people don’t read the whitepaper of coin before investing into it. They are just following advice from others.
I have read through the whitepaper of all coins where I did put money in. Some where advised, other I did find myself.
At least if one of these coins will vaporize, I know who to blame!
This is great. Very few people do that. However, I think it is not enough to rerad the white papers of the coins. We need a general understanding of the new economy that this technology is creating. This would help us determine which type of cryptocurrency has a better potential to succeed.
I agree but in my opinion this is not possible without reading the white paper!
Agreed
Thank you for sharing :-)
Good write up but how is 'scams' a type of cryptocurrency?
What do you call Bitconnect?!
I will explain a little bit more in part 2.
infrastructure and platforms seem to be the "hot" ones right now
I agree, but I would add currencies to the list too.
Very useful taxonomy of cryptos. It's an important point that you make that not all cryptocurrencies are, in fact, actually currencies.
Thank you, @dominicbasulto. After I finish Part 2, I am planning to talk about which type of cryptos is more likely to succeed. So, stay tuned ;)
This is a nice article, and you explain in simple terms the differences between them.
I am glad you liked it, @chesatochi.
Nicely explained about types of cryptos.. I was about to write an article on same topic.
Please, do that. The classification here is mine. I would love to see how other people would classify cryptos.
Hi, What about the list of application cryptocurrencies? Do you have a list?
Sure, I will talk about application currencies in part 2 soon.
Great :) Cant wait for it. Do you have a date for when you will have it posted?
Upvote and resstem, I read the very valuable stuff and look forward to continuing :)
Nice write up
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Thank you, @tts. Upvoted!