There are more than 6 thousand different digital currencies worldwide, including bitcoin and other cryptocurrencies. They are distinguished according to the following criteria:
Issue and its limitation
Mining method
Areas of use
Popularity
Transaction speed and privacy
What is a cryptocurrency?
Cryptocurrencies are means of payment expressed in an electronic code, the units of which are accounted for using a decentralized payment system.
Cryptocurrencies do not have a physical expression, but they are calculated in coins (coins) for convenience.
It is impossible to track the coins’ owner, which gives privacy when using them. However, all transactions are visible to network members and can be easily tracked. Therefore, against the background of traditional money, cryptocurrencies are distinguished by transparency. In addition, crypto assets operate decentralized; specific companies or authorities do not control them. These are automated networks in which there are no intermediaries who would have to pay a commission for the maintenance and security of operations.
Cryptocurrency Purposes
The cryptocurrency was conceived as an alternative to traditional money issued by central banks. Bitcoin was the first coin introduced.
Cryptocurrencies arose as new ways of using them were found. In particular, the following types are distinguished by a purpose:
Currencies Coins: Initially used like any money to pay for goods and services. They can also serve as an investment. The most famous representative is Bitcoin (BTC). Also other popular ones: are BCH, MXR, XRP, LTC, DOGE, and RVN.
Platforms Coins: They can be used as payment, but their primary purpose is to provide a resource for developing programs. They are used as an in-platform currency for developers. Popular: ETH, NEO, ATOM.
Cryptocurrency Exchanges are tokens issued by crypto exchanges to speed up the turnover of funds on their platforms and reward users.
Security Tokens – to attract start-up capital, they can be compared with securities: stocks or bonds.
App Coins – give the right to use the services of the platform or service.
Crypto Commodities – Never used as a regular currency outside a specific platform. It is used to pay for hosting on a remote service or media content.
Stable Coins are a type of cryptocurrency backed by fiat money, reserves of gold, or other resources. It has the least volatility. The most famous representative is Tether (TRC20 and ERC20), 100% backed by US dollars.
Cryptocurrency Differences
Cryptocurrencies, in addition to their purpose, also differ according to the following criteria:
All cryptocurrencies other than bitcoin are called altcoins. Some are developed based on bitcoin (for example, litecoin – LTC), and others are based on a unique blockchain (for example, Ethereum – ETH).
Cryptocurrencies are divided into coins and tokens. The former have their platform and independent circulation, while tokens are an asset or utility on top of a coin. The latter is easier to manufacture and may also have more features.
Although decentralization is inherent in the very definition of cryptocurrency, virtual assets are divided into decentralized and pseudo-decentralized. The latter still has a single control center, which in theory makes it possible to collude to complete a transaction without the owner’s knowledge.
Some currencies can be issued indefinitely, i.e., have an unlimited supply. For others, the emission is limited, and their number will never exceed a particular mark.
Pros and cons of bitcoin and other cryptocurrencies
The advantages of cryptocurrency compared to traditional money are pretty broad. It includes:
A decentralized payment system that banks and authorities cannot control;
anonymity when using coins and tokens,
transparency of transactions and openness of information about them for all network users,
reliability of the system,
Ease of use.
However, some disadvantages cause controversy among traders and financiers.
Most cryptocurrencies are not backed by anything and, therefore, volatile. Their value constantly fluctuates depending on the market’s ratio of supply and demand.
The funds will not be returned if you lose your personal access key to your wallet. The only exceptions are custodial online wallets, the principle of which is similar to online banking – in this case, not only you have access, but also the platform itself.
Legislative regulation of cryptocurrencies is unstable. If they are banned, holders will have to switch to the darknet, which will significantly limit the scope of digital assets.
Where to get bitcoin and other cryptocurrencies
Initially, the most common way to get cryptocurrency was mining – the selection of keys to seal blocks in the blockchain using the computing power of a computer. But in recent years, its popularity among private individuals has steadily declined. Since miners compete with each other for the opportunity to receive coins, each subsequent mined unit of cryptocurrency requires more power from the equipment that calculates it.
Cloud mining has replaced the usual one. It differs from the usual one because computing power is provided for rent. This method is highly beneficial (if we exclude hitting unscrupulous platforms).
For a beginner, buying is the easiest way to get bitcoin and other cryptocurrencies.
There are three types of sites where it is possible:
Cryptocurrency exchanges are large trading platforms with many sellers, buyers, and intermediaries. There are high limits on crypto transactions, rapid exchange rate fluctuations, and impressive trading volumes. Often, the interface of crypto exchanges is complicated for an inexperienced user; in addition, there are pretty high commissions.
P2P platforms. This is an ad site analog, where transactions occur directly between the seller and the buyer. The venue usually ensures the blocking of funds until the success of the marketing is confirmed to avoid deception on the part of users. Commissions are minimal or zero, but there are significantly fewer offers than on exchanges, and you must choose counterparties carefully.
Internet exchangers. The easiest and fastest way to buy crypto assets at a fixed price. The course here is not always more profitable than on exchanges, but the commissions are low, and the interface is accessible even to a beginner. It is essential to choose an exchanger with a good reputation and reviews since there are a lot of unscrupulous players in this market. The most popular exchanger in the Russian Federation and the countries of the former CIS is MINE.exchange.
Summary
We briefly analyzed how bitcoin and other cryptocurrencies differ. All digital assets are decentralized, have no physical expression, and ensure users’ anonymity with full publicity of all transactions.
The functionality of cryptocurrencies today is extensive and includes:
We are providing resources for software development.
Accelerating the turnover of funds on exchanges
Attracting start-up capital
Give the right to use the services
Payment for remote hosting or media content
The first cryptocurrency that is still the most popular is bitcoin. All other coins are called altcoins.
Pros of using cryptocurrencies:
Decentralization
Anonymity
Immutability
Transparency
Reliability
Ease of use
Cons:
High volatility (rate fluctuations)
Unable to recover access key
Disputed legal status in most countries
You can get bitcoin and other cryptocurrencies through mining or for fiat (traditional) money. The exchange of cryptocurrencies for fiat currencies is carried out on three types of sites:
Cryptocurrency exchanges
P2P platforms
Internet exchangers
