There are lots of different types of cryptocurrency, and each differs in what creates the value and why the currency holds value. These differences do make comparing the various currencies difficult, and this is why it is so important to do a lot of research before you take the plunge and make your first investment.
Fiat Cryptocurrencies
A Fiat cryptocurrency is anything which the public agree they will use for exchange and has value – such as the cocoa beans and cowrie shells. In 21st century societies we mostly use dollars, pounds, euros and other notes and coins, but does it have to be this way?
Fiat cryptocurrencies work in the same way, by storing value and then being used to pay for goods and services. This was the original cryptocurrency idea and a fiat currency is all about improving on the currency system we’re all familiar with, and just doing things better, more cheaply and in a way which gives control to the users rather than a central bank or government. Some of the biggest names in the fiat cryptocurrency market are:
- Bitcoin – the original, biggest and best-known crytptocurrency.
- Bitcoin Cash – similar to the standard Bitcoin, with some differences in coding and technology.
- Litecoin – Very similar to Bitcoin, and was based on the Bitcoin technology and code.
- Monero – Works in the same way as Bitcoin, but with an extra layer of security and privacy for users of the currency.
New cryptocurrencies are being launched all the time. Some will stay the course and become a major player in the market in years to come, others will disappear as quickly as they arrived. Beginner investors should probably start off with investing in the large, household names while they learn the market and techniques for buying and selling.
Stablecoin Cryptocurrency
Stablecoin differs from fiat cryptocurrencies in that these cryptocurrencies are tied to some sort of asset. The idea is to try to reduce the large fluctuations in value which can be experienced in fiat cryptocurrencies like Bitcoin and make them, well, more stable.
The best-known player in this market is Tether. Tether’s value is linked to the United States dollar.
Utility Tokens
Not everyone using cryptocurrencies is an individual user trying to avoid using a big bank. Companies and other businesses use cryptocurrency too. Utility tokens are used for a particular function, and used to be sold by new cryptocurrency developers to fund a project launch. Sometimes, holders of utility tokens share the profits of the network their tokens are linked to.
The most popular products of utility tokens are:
- Ether – which is linked to the Ethereum network and pays for the server power needed to operate it
- XRP – similar to the above, but linked to Ripple blockchain
