Did you know that 16% of U.S. adults say that they have invested in, traded, or used cryptocurrencies? Meanwhile, the majority of Americans don’t invest but have heard at least a little about popular cryptocurrencies like Bitcoin and Ether.
Before investing, it is important to know all you can about cryptocurrencies. You can start by learning the different types of cryptocurrency options out there.
Keep reading to learn more.
The Different Types of Cryptocurrency
In general, the different types of cryptocurrency fall into two categories; coins and tokens.
Coins include Bitcoin and altcoins, aka non-Bitcoin cryptocurrencies. Tokens are programmable assets that live within the blockchain of platforms.
Although some will use these terms interchangeably, there are differences that one must understand.
Coins vs. Tokens
Coins and tokens are both forms of cryptocurrency but each provides a different function. Coins are created through their blockchain and are intended to be a form of currency.
For example, Ether (ETH) is a cryptocurrency based on the Ethereum blockchain. In general, any blockchain-based cryptocurrency that isn’t Bitcoin is an altcoin.
Tokens are built on a blockchain platform as well but aren’t considered currency. Instead, they are programmable assets created for executing smart contracts.
Contracts establish ownership of assets outside of a blockchain network. Token represent units of value, some being real-world items such as:
- Coins
- Digital assets
- Points
- Money
- Electricity
On the Ethereum platform, BAT (Basic Attention Token) is a token for digital advertising use.
Altcoins
Altcoin is a shorthand term that means an alternative to Bitcoin. These coins improve upon Bitcoin in different ways. Some popular examples of altcoins include Litecoin, Dogecoin, Peercoin, and Ethereum.
This article goes into more detail about the difference between Bitcoin and altcoins, specifically dogecoin.
Most altcoins get built on the same framework as Bitcoin. They share some similar characteristics but each offers something different for investors.
A similarity between the two, for example, is that some cryptocurrencies have a limited supply of coins like Bitcoin. As stated by the creator of Bitcoin, there is a fixed number of these coins that can get created.
Altcoins differ from Bitcoin as some use a different process to validate and produce blocks of transactions. Some might also offer newer features like smart contracts or lower price volatility.
Tokens
Much like a stock, tokens are usually created and received through an Initial Coin Offering (ICO). They get represented as any of the following:
- Value tokens
- Security tokens
- Utility tokens
Tokens represent value like American dollars do, but they aren’t valuable. Tokens can still be used in transactions for some things.
The Crypto Craze: Are You Joining?
More than a decade ago, Bitcoin launched its cryptocurrency and started the crypto craze. Nowadays, there are thousands of different types of cryptocurrency options to choose from.
Before joining in on this craze as an investor, it’s important to learn all you can about cryptocurrency. Coins and tokens serve different purposes and can help investors make the most of their money.
For more guides on investing and other financial topics, check out the other articles on our blog.
