Cryptocurrencies have turn out to be a well-liked class of digital asset that may be saved, used, and exchanged. These digital belongings will not be the identical as conventional monetary devices comparable to gold or shares owned by corporations. As an alternative, cryptocurrencies are digital currencies that use encryption to safe their worth and make them tough to counterfeit.
Cryptocurrencies are additionally unstable, which makes them an attention-grabbing funding possibility. This raises the query: what are cryptocurrencies good for? The reply will depend on the kind of utility you need out of your cryptocurrency.
1. Retailer of Worth Cryptocurrencies
A retailer of worth is any merchandise/asset that retains buying energy into the long run and may be readily exchanged for one thing else. Within the crypto house, a few cryptocurrencies had been designed with the primary goal of being cash. Through the years, they’ve developed and can be utilized as a retailer of worth, identical to gold or actual property. The 2 main cryptocurrencies that fall into this class are Bitcoin and Litecoin.
Bitcoin is at the moment the preferred cryptocurrency. It has been round for the longest time, and folks have turn out to be used to purchasing it with the objective of Bitcoin rising in value.
Bitcoin has proven that it may be leveraged over time to earn higher returns. With an annualized return of 230% during the last decade, it has carried out ten occasions higher than the NASDAQ 100. Bitcoin additionally has a restricted provide of 21 million tokens which suggests there’ll at all times be a requirement for it due to its restricted provide.
Litecoin was created to enhance Bitcoin by offering customers with a quicker technique of transacting cash over the web. Consequently, Litecoin is sometimes called “digital silver” in comparison with Bitcoin, which is thought to be “digital gold.”
Litecoin was created as a tough fork of Bitcoin’s blockchain, and it holds many similarities in the way it features, together with appearing as a retailer of worth. Litecoin is a deflationary currency and has witnessed value good points over time as a consequence of its international liquidity and finite provide.
2. Protocol/Trade Cryptocurrencies
Protocol-level cash are cryptocurrencies which have a customized blockchain. These protocols permit the functioning of purposes and supply safety and entry to the blockchain.
Some cryptocurrencies are simply protocols, making the blockchain their solely goal, and others are exchanges that present their tokens. Exchanges are platforms that permit customers to purchase or promote cryptocurrencies for fiat currencies comparable to USD or EUR. These protocol networks present methods to earn returns by means of staking with proof-of-stake (POS) algorithms.
A key instance of a protocol/change cryptocurrency is Construct and Construct (BNB), previously known as Binance Coin (and nonetheless sometimes called such). BNB is a cryptocurrency constructed on a customized blockchain known as BNB Chain. BNB is the blockchain token that powers transactions on the BNB Chain. All actions on the blockchain require BNB tokens to be processed, making BNB a vital a part of every thing that occurs on the BNB Chain.
One other kind of protocol/change cryptocurrency is Cronos (CRO) which has its personal customized blockchain and native cryptocurrency. Different examples on this class embody Polkadot (DOT), Reef Chain (REEF), and Okex (OKB).
3. Gaming/NFT Cryptocurrencies
Gaming and non-fungible tokens (NFTs) are among the many hottest cryptocurrencies at present. They’re designed for use in video games and on-line purposes. For instance, a gaming NFT token can symbolize possession of digital objects or digital belongings inside gaming purposes.
These digital belongings have distinctive traits and can’t be replicated or cloned. NFTs are usually minted on Ethereum, though different blockchains have additionally been used for this goal—we have checked out the best sites for minting NFTs.
A well-liked working example of a gaming/NFT token is Axie Infinity (AXS). Axie Infinity is an NFT-based sport identified for its in-play digital economic system. Gamers acquire and commerce digital pets generally known as Axies. Axie Infinity (AXS) can also be tradeable on main exchanges, which makes it distinctive.
Different forms of Gaming/NFT tokens embody Enjin (ENJ), Chiliz (CHZ), Gala (GALA), The Sandbox (SAND), and Dencentraland (MANA).
4. Sensible Contract Cryptocurrencies
Smart contracts are self-executing contracts that can be utilized to make transactions. They’re a sort of program code that runs straight on the blockchain, eradicating the necessity for any third get together to course of the contract. On this approach, good contracts permit for the automated execution of agreements between two or extra events in a clear and verifiable approach.
MakerDAO is a decentralized software program platform, and its Maker (MKR) token is an ideal instance of a sensible contract cryptocurrency. Maker (MKR) is the governance token of MakerDAO that enables customers to subject and handle the DAI stablecoin. MKR tokens are wanted for voting rights within the growth of the Maker Protocol.
Polymath (POLY) is one other cryptocurrency making waves within the good contract class. Polymath (POLY) presents a platform that enables verified buyers to take part in securities token choices (STOs) utilizing the Polymath ST-20 normal.
Extra cryptocurrencies on this class embody Miota (IOTA) and Stellar (XLM). These tokens can be utilized for governance protocols, automated escrow techniques, and marketplaces that use good contracts to facilitate the change of products or providers.
5. Privateness Cryptocurrencies
Cryptocurrencies which can be privacy-focused are available in varied varieties and shapes. Privacy cryptocurrencies allow nameless and personal transactions. These cash/tokens do not require private info to make use of or commerce with.
Monero (XMR) is a decentralized cryptocurrency with privacy-enhancing applied sciences that masks transactions to attain anonymity and fungibility. This makes Monero person transactions, pockets balances, and buying and selling exercise extraordinarily laborious to decipher. Consequently, this cryptocurrency presents next-level privateness.
Zcash (ZEC) is one other privacy-focused cryptocurrency. It makes use of advanced-level cryptography to supply enhanced privateness for its customers. Zcash relies on Bitcoin’s codebase and shares some similarities, comparable to a set provide of 21 million tokens.
Extra privacy-based cryptocurrencies embody Secret (SCRT), Sprint (DASH), Decred (DCR), Nightfall Community (DUSK), and Verge (XVG).
6. FinTech Cryptocurrencies
This ultimate categorization focuses on cryptocurrencies that use blockchain know-how to create new purposes and monetary merchandise.
Ethereum, the second largest cryptocurrency by market capitalization, heads the checklist of cryptocurrencies in Fintech. Its blockchain has been used to create forex (Ether) and likewise serves as a constructing platform for a plethora of decentralized applications.
Solana is one other blockchain with monetary and technological attributes. It’s a high-performance blockchain with a local forex known as SOL. It helps builders world wide in creating crypto apps with its scalable blockchain infrastructure.
Extra cryptocurrencies within the FinTech class: Polygon (MATIC), Algorand (ALGO), Fantom (FTM), Avalanche (AVAX), Cosmos (ATOM)
Cryptocurrency Categorization Is Nonetheless Evolving
There are quite a few methods to categorize cryptocurrencies, and it is necessary to notice that some cryptocurrencies included in these classes can match into multiple class kind. Nonetheless, as blockchain know-how and cryptocurrencies evolve, and new use instances are found, extra cryptocurrency classifications will come up.