The creation of Bitcoin provoked a real revolution in the world of finance. The ability to conduct transactions instantly, and do it anonymously and without intermediary fees, has attracted a huge number of people. As a result of the surge in the popularity of Bitcoin, there appeared a lot of new cryptocurrencies. They took into account the disadvantages of Bitcoin and proposed new solutions. So now the eyes of many traders are on the ETH, ADA, and XRP price live, hoping to find that perfect needle in a haystack.
Coins vs. Tokens
The first thing to understand is that “token” and “coin” are not the same thing. They have significant differences that everyone needs to know.
Coins are a digital currency created and running on its own blockchain. The purpose of coins is to have their own value and be used as a unit of payment or a medium of exchange. Coins do not require any other platforms, they work independently. They also have a high level of security, as individual encryption algorithms are used.
Tokens are created on the basis of an already existing blockchain (many of them are based on Ethereum). Crypto tokens can be digital shares of a company (security tokens) or provide access to project services (utility tokens).
Why are there so many types of cryptocurrencies?
That is a common question. Blockchain technology is open source, which means that any developer can take it as a basis and create their own product.
In fact, some enthusiasts took advantage of this and started issuing their own coins based on popular source codes. This provoked a significant increase in the number of cryptocurrencies in the public domain, because it is much easier to create something on an existing platform than to create something new from scratch.
In addition, there is the concept of hard fork: a drastic change in the network protocol, which results in the appearance of a new cryptocurrency. For example, Bitcoin Cash was created as a result of a Bitcoin fork.
Of course, the rise in cryptocurrency prices has stimulated the developers to make money by creating their own digital currency. It is important to keep in mind that not all cryptocurrencies are successful projects, and some may turn out to be a “bubble” that will simply burst at some point.
Main types of cryptocurrency: examples
1. Bitcoin (BTC) is the first currency based on blockchain technology. The Bitcoin blockchain verifies and validates transactions by acting as a single ledger for recording transactions.
Each party has the opportunity to prove the presence of Bitcoins and the right to dispose of them, which prevents possible cases of fraud and manipulation. The decentralized nature of Bitcoin also makes peer-to-peer transactions much faster and cheaper. Of course, most people consider Bitcoin to be the best cryptocurrency.
2. Ether (ETH) is a token used to facilitate transactions on the Ethereum network. Ethereum is both a cryptocurrency and a platform that uses blockchain technology to create other decentralized applications and smart contracts.
3. Tether (USDT) is in the category of stablecoins, the market value of which is tied to a specific asset. In this case, to the US dollar at a 1:1 ratio. USDT combines all the advantages of cryptocurrency assets with the lack of volatility of the traditional currency issued by the central government.
4. XRP is a cryptocurrency based on the XRP Ledger blockchain. The goal of the coin creators is to improve the global payment system. XRP is trusted by major financial institutions and is used as a means of transferring fiat funds around the world.
5. ADA is an internal cryptocurrency with which the transactions on Cardano blockchain are carried out. Cardano (ADA) is a blockchain and decentralized application platform with support for smart contracts and a multi-asset ledger. It aims to solve the scalability problems that the world of cryptocurrencies has faced.
Are there different types of cryptocurrency trading?
Depending on the skills of traders, they can choose from margin trading, futures trading, or the easiest one, spot trading.
Cryptocurrencies open up a lot of trading opportunities. However, it is worth noting that investing in cryptocurrency is very different from investing in securities and traditional assets. Due to volatility, the price of a cryptocurrency can often change in response to external factors, obeying the law of supply and demand. Trading involves the use of special trading strategies.
Perhaps not all cryptocurrencies are interesting and necessary, but there are real gems that directly affect the progress of mankind in the financial sector. By learning to highlight worthy options and understanding the issue a little deeper, you have every chance of making money on cryptocurrency. The main thing is not to make hasty decisions, and keep abreast of the market.