beginingCryptocurrenciesBitcoinWhat are the main types of cryptocurrencies? | A guide suitable for beginners

    What are the main types of cryptocurrencies? | A guide suitable for beginners

    As long as you hold any fiat, your purchasing power increases over time. Government currencies lose 2-3% of purchasing power each year due to excessive money printing. This is called inflation. If you've managed to save $1 million for retirement, the amount of things you can buy when you retire will decrease, depending on how long you've saved $1 million. For example, if something cost $ 10 in 1980, that item would now cost $ 32.67

    Money printing is not inherently bad and the inflation rate means nothing if wage growth continues. If the government prints money to build more roads or schools or subsidize value-added projects, that would be good. BUT the excessive spending was directed at bailing out banks, and then the latest bailouts are used by companies to buy back shares instead of investing in innovation and R&D. 

    Bitcoin is the flagship of SoV cryptocurrencies. It is designed to have a deflationary monetary policy. Unlike central banks, which can print money like there's no tomorrow, the amount of bitcoin in circulation cannot exceed 21 million. Miners around the world can validate transactions by competing to solve complex equations and earn Bitcoin rewards for successfully validating a set of transactions, called blocks, and storing them on top of previously completed blocks. 

    Programmable or Smart Contract Cryptocurrencies

    Programmable cryptocurrencies provide a solution to problems with limited functionality through the use of smart contracts. Like traditional contracts, a smart contract contains sets of IF something happens, THEN something else will follow. If you combine a number of smart contracts, you get a Decentralized Application (dApp). Smart contracts cannot be changed once they are implemented and cannot be turned off because they run on a blockchain stored on a number of computers around the world. Ethereum is the largest smart contract cryptocurrency. You can find a range of dApps, from gaming to gambling, to traditional finance dApps that enable trading, borrowing and lending. 

    Programmable cryptocurrencies usually have an inflationary monetary policy because their coins are intended to be used as a fee to upload a smart contract to the blockchain. These fees are paid to validating transactions and keeping the network safe and secure. Instead of deriving their value from their ability to retain your purchasing power, programmable cryptocurrencies derive their value from the number of dApps and users on the network. 

    Stablecoins coins

    Stablecoins are a type of cryptocurrency whose value is tied to another asset, usually a fiat currency such as USD. According to Coindesk , “In countries like Brazil, many people are turning to stablecoins as an alternative to their national currencies in uncertain economic conditions. Meanwhile, in Hong Kong, some people are using stablecoins to avoid new internet censorship in the turbulent political climate.” Depending on the type of asset to which the stable is tied, the entity behind the stable currency keeps an equal amount of that asset in reserve. Some of the most popular stablecoins include Tether, USDC, and Dai. They are all pegged to the US dollar, but while Tether and USDC are backed by US dollars, Dai is backed by ETH. 

    Stablecoins are primarily used to take advantage of arbitrage opportunities. Traders sell their crypto and buy later at a lower price or move stablecoins across exchanges to take advantage of price discrepancies.


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