Bitcoin is the most popular cryptocurrency, but there are literally thousands of different cryptos out there. So it’s important to understand what all of them are before you make a decision about which one is right for you.
Generally, there are two main types of cryptocurrencies: mining-based altcoins and stablecoins. Stablecoins closely track the value of a fiat currency such as the dollar, so they tend to have lower volatility than other currencies.
Bitcoin
Bitcoin has been a trendsetter, ushering in a wave of cryptocurrencies built on a decentralized peer-to-peer network. It’s a digital currency that operates independently of any central authority and is based on cryptography, a study of secure communication techniques. There is also the Bitcoin Lightning Network which enables micro-transactions and massive scaling.
It’s the first of the digital coins and remains the most common cryptocurrency in use today, with billions of transactions per day, and you can even get paid Bitcoin for walking and playing games.
This is despite its price volatility over the years. While many people have embraced the technology as an alternative to traditional currencies, it’s important to be aware of the risks before making any transactions.
While cryptocurrencies can be volatile, they are an increasing source of alternative payments in online commerce and can be a great way to save money. They’re also a useful tool for fighting inflation.
Litecoin
Litecoin was created by Charlie Lee, who previously worked at Google. He wanted to create a crypto that used Bitcoin’s innovative technology but had more transactional efficiency, making it easier for people to use.
Unlike Bitcoin, Litecoin uses a hashing algorithm called Scrypt that can be mined using ordinary CPUs or GPUs. This modification allows the cryptocurrency to remain accessible to a wider range of users and reduces hardware requirements.
It also has a faster network than Bitcoin, which helps to reduce transaction fees and make it more attractive for consumers. Its supply has increased four-fold since its launch, increasing the number of coins available to 84 million.
Dai
Dai is one of the most common cryptocurrencies on the market. It’s a stablecoin that’s backed by the US dollar and runs on the Ethereum blockchain.
DAI’s price has stayed within the $1 range since it was launched in 2017. That said, it can fluctuate from time to time due to changes in demand and supply.
DAI’s value is regulated by its Maker Protocol, which uses self-executing smart contracts. This system incentivizes users to keep the Dai price within a certain range.
Stablecoins
Stablecoins are a type of cryptocurrency that limits the volatility of their value. This can be done by being backed with either fiat currencies or commodities like gold.
Some stablecoins are centralized, meaning they are held by a custodian who regulates their asset reserves. The custodian must be in compliance with regulators and avoid cyber-attacks that could result in the loss of assets.
Another type of stablecoin is algorithmic, which uses smart contracts to maintain the value of their tokens. These algorithms decrease the circulating supply when the price is low and increase it when prices are high, maintaining a peg of the tokens to the fiat currency or commodity they represent.
Some algorithmic stablecoins also allow users to create new tokens by depositing collateral. This can lead to a Ponzi scheme, in which new tokens are created with money from new investors.
Security Tokens
Security Tokens are the most common cryptocurrencies, and they represent fractional ownership in assets such as equity, a company or real estate. They can be used to fund projects or raise capital, much like traditional securities such as stocks and bonds. Tezos is a Layer 1 protocol that is very helpful in this space.
However, these tokens are not immune to hacking and security breaches. Bad actors can gain access to your systems through social engineering by stealing your token or generating a one-time password.
This means you should protect your tokens carefully. If you do not, you risk losing your funds and compromising your security.