While bitcoin is the most popular digital currency, there are others that one should take note off.
Since the creation of bitcoin in 2009, there has been emergence of about 1,500 other crypto currencies. And they are categorised in segments such as stable coins and tokens.
The value of crypto currencies for an investor lies in the fact that they are not regulated by any central authority and can be used pseudonymously thereby offering greater privacy.
Crypto currencies have gained wider adoption even though in its initial years, it was viewed to be a currency for illegal transactions. Experiments on the possible usage of crypto currency by customers are being done by brands like Overstock and Starbucks.
But the volatility of crypto currencies in recent years makes it imperative to know a bit more about them.
The first difference is between them being classified as coins and tokens.
While coins are considered to be virtual cash which can be used for multiple forms of transactions, tokens are considered to be assets where people can store value.
Being the frist and the most widely used and the crypto currency that has the highest valuation, therefore bitcoin has become the benchmark for comparing other crypto currencies.
“Bitcoin is the mother crypto,” said Marshall Hayner, founder of Metal Pay, an app that works in away similar to Venmo for crypto currencies.
There are a number of alternative coins motivated by the success of bitcoin including the likes of litecoin, XRP and ether.
A unique blockchain Ethereum forms the basis of ether. Ethereum is amongst the largest creators of smart contracts. On the meeting of certain conditions, verification and triggering of transactions are takes place with the help of these contracts and cryptographic code.
XRP is another bitcoin alternative which was designed to help to make easier banks and payment process for enabling cross-border payments. This is also amongst the most popular of the crypto currencies.
And then there are some alternatives that are much lesser known such as dogecoin which was developed as a joke based on a viral meme of a Shiba Inu. This virtual coin has on its front a dog’s face. Many investors have used dogecoin to train themselves to trade in the crypto market because it is not taken seriously by its own community.
Then comes what is known as stable coins.
These are digital coins and considered usable by many just as the actual currencies such as the US dollar, the euro or the British pound. The designing of these types of coins was aimed to mimic the actual currencies and have the tendency of being less volatile compared to other currencies.
One of the first so called stable coins was tether.
“The idea behind tether is you give a dollar and you get one tether,” Hayner said.
But Ryan Taylor, CEO of the cryptocurrency Dash says that there is still risk. Just as it can happen with actual currencies such as the US dollar, their values can be eroded over time.
There are also some other coins that are known as utility tokens.
A certain service or good on a specific platform is represented by utility tokens.
A certain service or good on a specific platform is represented by utility tokens and they are similar to gift cards that can be used only in a particular or designated store. These are not investments in the real sense but do possess some value.
There are also crypto currencies that are known as security tokens and they are very new in the crypto world. Real-world assets are the source of value for these currencies. Such assets could be commodities such as gold or oil stocks of a company or interest in a fund. While being a form of investments, they are subject to federal security regulations because they are considered as securities.
Yet another type of crypto currency exists which is called non-fungible tokens and possess a unique value or use because none of the two tokens are alike despite they store value.
(Adapted from Money.CNN.com)