What are the types of Cryptocurrency?

Cryptocurrency is the buzzword among most investment circles. With social media influencers sharing incredible stories of massive overnight gains on crypto, everyone is curious to give it a shot. 

Cryptocurrency is an intangible, digital currency that exists only in the form of online transaction records. You can buy cryptocurrency by paying in US dollars, rupees or other fiat currencies through a cryptocurrency exchange, ATM or other people who own cryptocurrency. Cryptocurrency works on a blockchain system. When one person sends cryptocurrency to another person, this transaction gets recorded on the personal ledger of every single user on the system. Transactions are grouped into blocks, which form a blockchain. 

Another important concept in cryptocurrency is crypto mining. The transactions on a blockchain need to be verified. This job is done by cryptominers. For example, on the Bitcoin blockchain, cryptominers compete to solve complex computational math puzzles. The one who solves the puzzle first gets rewarded in bitcoins and their record of the transactions becomes the official record.

Coins and tokens

Cryptocurrencies can be classified as coins and tokens. Coins have their own blockchain and have an intrinsic value, while tokens work on a parent block chain and they don’t have intrinsic value, their value is derived from what they represent, e.g. assets or utilities. 

How many different types of cryptocurrency are there?

Now that we are familiar with the basics of cryptocurrency, we can discuss different types of cryptocurrency. As of today, there are more than 6700 cryptocurrencies. Some cryptocurrencies have a limited supply, meaning that there is a finite number of coins that can be mined. Some don’t have a supply limit. All cryptocurrencies have a price, i.e. value in dollars or other fiat currencies. For example, currently one bitcoin is worth $40,000, or Rs. 29,83,392. Lastly, all cryptocurrencies have a market cap, meaning the total value of all the coins in circulation.

So What are the types of Cryptocurrency?

1. Bitcoin

The first type of cryptocurrency to be invented was Bitcoin, which was introduced in 2009. All other cryptocurrencies that were introduced after that are called alt coins, or alternative coins. A lot of them were created as modifications or improvisations over Bitcoin.

Bitcoin is so popular that sometimes ‘bitcoin’ and ‘cryptocurrency’ are used simultaneously. People have gone to the extent of calling it digital gold and speculating that it will be adopted by government organisations in the years to come. 

Currently, it has a market cap (total value of all mined coins) of 1 trillion dollars and sells for 55,000 dollars per coin. The supply of Bitcoin has a cap of 21 million coins, of which 18.9 are currently in circulation.

2. Ethereum

Created in 2015, Ethereum was supposed to complement bitcoin. But today they are rivals. In fact, Ethereum is superior to bitcoin in terms of speed of updating blockchain, processing data and the added advantage of using smart contracts to automatically execute transactions.

It is to be noted that Ethereum is the name of the platform, and Ether is the name of the currency. Ether has a market cap of 460 billion dollars and it sells for 4000 dollars per coin. The supply of Ether is limitless, and currently there are 115 million coins in circulation.

3.  Litecoin

Litecoin, next to Bitcoin, is called digital silver. The market cap value of Litecoin is about 13 billion dollars and it sells at a price of about 200 dollars per coin. The supply of Litecoin is limited to 84 billion coins, of which 66 billion coins are currently in circulation. 

Launched 2 years after Bitcoin, Litecoin was created as an improvisation over Bitcoin. Litecoin is pretty much similar to bitcoin except that while the Bitcoin blockchain updates transactions every 10 minutes, Litecoin does it every 2.5 minutes. 

Internet computer

Internet computer, abbreviated ICP, is a currency launched by a company called Difinity. It was launched only a week ago, and currently ((May 2021) its market cap value is over 30 billion dollars. It employs smart contracts and has a blockchain that works much faster and uses much less resources compared to Bitcoin and Ethereum. 

The defining feature, however, is its vision to decentralise the internet, i.e. allowing people to conduct their business online without requiring middlemen like Facebook and Google.

Cardano

Cardano, started in 2017, supplies a cryptocurrency called ADA. It has a market cap of 55 billion dollars and sells at the price of 1.75 dollars per coin. The supply of ADA has a limit of 45 billion coins, out of which 31.9 billion are in circulation currently. 

Important features of ADA include the proof of stake system of verifying transactions and the company’s ambition to become the internet of blockchains, i.e. link all blockchains to each other, allowing people to trade in all cryptocurrencies on one platform.

Ripple

XRP tokens,  launched by Ripple in 2012, are a bit different from other cryptocurrencies. The main service offered by Ripple is transfer of money between different cryptocurrencies. XRP is the token that is used for these transfers. Normally, this settlement is done using US dollars, takes more time and charges fees. Using Ripple, you first convert the cryptocurrency into its equivalent value in XRP and then from XRP to the other cryptocurrency. Unlike Bitcoin and Ethereum which are mined by cryptominers, XRP is premined, which means all the coins were already mined when Ripple was launched.

The supply limit of XRP is 50 million tokens, of which around 45,000 billion are currently in circulation. The market cap is around 51 billion and one token costs $1.12.

Apart from these, there are several other cryptocurrencies, some of which are even created without even putting a lot of thought, or created as a joke. Meme tokens, especially, are springing up rapidly. 

Not all of these are serious investment options. It is important to think about where you stand in terms of your finances and read the white paper of any company before investing in its cryptocurrency.