World Of Cryptocurrencies
Cryptocurrency is a relatively newer form of currency that has been floating for a while but has suddenly gotten into the limelight. Unlike fiat currencies which require a medium like a bank to complete transactions, crypto successfully eliminates a medium and hence is a peer-to-peer network. Cryptocurrency is the name given to a system that uses cryptography to allow the secure transfer and exchange of digital tokens in a distributed and decentralized manner. These tokens can be traded at market rates for fiat currencies.
The first cryptocurrency that came into being was Bitcoin which began trading in January 2009. Bitcoin was launched by a person/group of people known by the name of ‘Satoshi Nakamoto’. Now there are more than hundreds of cryptocurrencies and various other applications of blockchain technology readily available.
Cryptocurrency holds the potential for being cheap, secure, and near-instant transactions allowing millions of people to join the world of internet commerce. This system allows businesses to offer real-time pay-per-use consumption of their products such as cell phone services, video, etc.
The rise of cryptocurrency poses a threat to many existing traditional functions of finance. Investing in stocks, keeping money in banks are some examples of this.
BLOCKCHAIN
A blockchain is a decentralized ledger of all transactions across a peer-to-peer network. This technology enables users to confirm transactions without needing a central clearing authority.
Blockchain holds the potential of going far beyond bitcoin and cryptocurrency. But in this article, we’ll stick to its use in the crypto field.
CRYPTOCURRENCIES
A cryptocurrency doesn’t have any intrinsic value and functions only because there is sufficient market acceptance and there is a belief that the currency has value attributed to it. In the case of fiat currencies, money has value because people trust the central bank. For cryptocurrencies additions to the public ledger are confirmed by the crowd of people participating.
PROOF OF WORK VS PROOF OF STAKE
DIFFERENT TYPES OF CRYPTOCURRENCIES
Cryptocurrencies can be grouped into seven classes:
- Transaction mechanism: bitcoin,litecoin
- Distributed computation token: Internet computer where programs, smart contracts are executed when called. For eg- Ethereum, Tezos
- Utility token: Programmable blockchain asset. For eg- Golem,FileCoin
- Security token: Represents stocks, bonds, derivatives, or other financial assets. For eg- Security Token Offerings(STO)
- Fungible Token: Most popular is ERC-20 issued on the ethereum blockchain.
- Non-Fungible Token: Each token is unique and not interchangeable with another. For eg- Cryptokitties, Decentraland(LAND)
- Stablecoins: There are four categories -
- Collateralized with fiat currency: USDT,USDC
- Collateralized with real assets: DGX, collateralized by gold
- Cryptocurrency Collateralized: MakerDAO offers DAI coin pegged to US dollar
- Uncollateralized: Basis project and their coin Basecoin
Price action of Bitcoin:
Bitcoin price since inception has seen the rise of 26140% and has outperformed all traditional assets.
CLOSING REMARKS
Cryptocurrency is financial innovation and offers vast research avenues. As with new innovations there lies many confusions in the space.
Our goal was to highlight various types of cryptocurrencies and their price discovery since inception.
