Common Types of Cryptocurrencies
How Can You Use Cryptocurrency?
Cryptocurrency is a virtual currency that is secured using cryptography. Unlike traditional fiat currencies, which are controlled, regulated and issued by central authorities, digital currencies operate without intermediaries, on decentralized, blockchain-based networks. Buying, selling and storing crypto is secure, transparent and cost effective. However the under-regulated and anonymous nature of the cryptocurrency space means that caution is advised for traders and investors entering the market. Also crypto prices are known for their volatility, which can involve significant risk but also provide high profit potential.
How Does Cryptocurrency Work?
Cryptocurrencies, like Bitcoin, Ethereum, and Tether USDT, operate using blockchain technology. A blockchain is a decentralized network, protected using cryptography. All transactions are recorded on a digital, distributed ledger, which is immutable, meaning once a payment is added to the ledger it cannot be changed or removed.
Blockchain transactions are executed using a smart contract. This is a type of automated digital agreement, signed and stored on the blockchain. As soon as the pre-agreed terms and conditions of the contract are met, the transaction is executed.
Users can then hold their assets in crypto wallets, virtual wallets that store the private keys, keeping the funds safe. Crypto can be saved in a wallet, while remaining accessible for purchase or sale./p>
Common Types of Cryptocurrencies
Here is a list of some of the main types of crypto assets, with popular examples of each:/p>
- Stablecoins – These are digital assets that are considered a reliable store of value because they are designed to maintain a consistent price. They are often pegged to the price of another asset, such as the US dollar, like Tether (USDT) or USDC. They can also be algorithmic stablecoins which use smart contracts to control supply and demand.
- Utility tokens – These are coins that have a specific role in the functioning of a blockchain ecosystem. Their price will depend on the value of the utility that the project is providing, such as SOL, which is used to secure the Solana network through staking, XRP, which is used for smooth cross-border transactions, or Toncoin, used for TON network operations, transactions, collectibles and games.
- Non-fungible tokens (NFTs) – These are unique assets that serve as digital proof of ownership for art, music, collectibles, in-game items, real estate and other non-fungible assets. One of the most famous examples is Beeple’s collage “ The First 500 Days” sold for an incredible $69.3 million.
- Meme coins – These are crypto tokens that originate from internet memes and have humorous characteristics. Significantly, these coins offer no utility, and they are not pegged to, or backed by other assets. The best known example is probable Dogecoin, created as a joke in 2013, based on the Shiba Inu dog memes of the 2010s. Other popular examples are SHIB and PEPE.
- Liquidity provider (LP) tokens – These tokens represent liquidity contributions to decentralized exchange liquidity pools. This proof of deposit enables the holder to withdraw the liquidity later on. Examples of popular DEXs that provide LP tokens to their liquidity providers include Uniswap, Sushi and PancakeSwap.
How to Buy Cryptocurrency
Cryptocurrencies are bought and sold on crypto exchanges. These can be centralized (CEX), decentralized (DEX) or hybrid exchanges, which offer a middle ground. The crypto buyer can execute a spot purchase, meaning they buy the asset at the prevailing price. Alternatively, the buyer can place a limit order that gets automatically executed when the price hits a desired target.
Crypto traders and investors have hundreds of reputable exchanges to choose from, and the process of buying cryptocurrency, for beginners and seasoned crypto investors, is quick and simple:
A Step-by-step Guide to Buying Crypto through an Exchange
- Pick an exchange – choose one with a clean record, a strong team, and a good reputation
- Open an account – register and complete ID verification, as this ensures the security of your account.
- Make a deposit – Fund your account using fiat or crypto, via a bank transfer, credit card or wallet transfer.
- Buy crypto – Choose which crypto asset you want to buy and place your order.
- Store your digital assets – Once you have purchased crypto, you can store it in a secure online (hot)or offline (cold) wallet.
How Can You Use Cryptocurrency?
Cryptocurrencies are incredibly versatile and they have a broad range of potential use cases. A few of the most common uses for digital asset include:
- Investing: Holding digital assets over the long term, as they appreciate in value
- Trading: Buying and selling assets on crypto exchanges to benefit from short-term price fluctuations.
- DeFi: Participating in decentralized finance (DeFi) opportunities like staking and lending.
- Payments: Making online purchases or paying for online services using crypto
- Remittances: Transfering funds internationally faster and at lower cost
Understanding what crypto is, and how it works, are essential first steps for cryptocurrency beginners. This exciting, fast paced financial asset offers exceptional opportunities but getting a strong grounding in the basics is critical to crypto market success.
Want to navigate the world of digital assets with ease? Check out more articles from the MyMollet crypto glossary, and become a confident crypto investor!
