Cryptocurrencies have change into a well-liked class of digital asset that may be saved, used, and exchanged. These digital property will not be the identical as conventional monetary devices equivalent to gold or shares owned by corporations. As an alternative, cryptocurrencies are digital currencies that use encryption to safe their worth and make them troublesome to counterfeit.
Cryptocurrencies are additionally unstable, which makes them an attention-grabbing funding possibility. This raises the query: what are cryptocurrencies good for? The reply is dependent upon the kind of utility you need out of your cryptocurrency.
1. Retailer of Worth Cryptocurrencies
A retailer of worth is any merchandise/asset that retains buying energy into the longer term and might be readily exchanged for one thing else. Within the crypto area, a few cryptocurrencies had been designed with the principle objective of being cash. Over time, they’ve advanced and can be utilized as a retailer of worth, identical to gold or actual property. The 2 main cryptocurrencies that fall into this class are Bitcoin and Litecoin.
Bitcoin is presently the most well-liked cryptocurrency. It has been round for the longest time, and folks have change into used to purchasing it with the purpose of Bitcoin rising in value.
Bitcoin has proven that it may be leveraged over time to earn higher returns. With an annualized return of 230% during the last decade, it has carried out ten instances higher than the NASDAQ 100. Bitcoin additionally has a restricted provide of 21 million tokens which implies there’ll at all times be a requirement for it due to its restricted provide.
Litecoin was created to enhance Bitcoin by offering customers with a sooner technique of transacting cash over the web. Consequently, Litecoin is sometimes called “digital silver” in comparison with Bitcoin, which is thought to be “digital gold.”
Litecoin was created as a tough fork of Bitcoin’s blockchain, and it holds many similarities in the way it features, together with appearing as a retailer of worth. Litecoin is a deflationary currency and has witnessed value good points over time attributable to its world liquidity and finite provide.
2. Protocol/Alternate Cryptocurrencies
Protocol-level cash are cryptocurrencies which have a customized blockchain. These protocols permit the functioning of purposes and supply safety and entry to the blockchain.
Some cryptocurrencies are simply protocols, making the blockchain their solely objective, and others are exchanges that present their tokens. Exchanges are platforms that permit customers to purchase or promote cryptocurrencies for fiat currencies equivalent to USD or EUR. These protocol networks present methods to earn returns by means of staking with proof-of-stake (POS) algorithms.
A key instance of a protocol/trade cryptocurrency is Construct and Construct (BNB), previously referred to as Binance Coin (and nonetheless sometimes called such). BNB is a cryptocurrency constructed on a customized blockchain referred to as BNB Chain. BNB is the blockchain token that powers transactions on the BNB Chain. All actions on the blockchain require BNB tokens to be processed, making BNB a vital a part of all the things that occurs on the BNB Chain.
One other kind of protocol/trade cryptocurrency is Cronos (CRO) which has its personal customized blockchain and native cryptocurrency. Different examples on this class embody Polkadot (DOT), Reef Chain (REEF), and Okex (OKB).
3. Gaming/NFT Cryptocurrencies
Gaming and non-fungible tokens (NFTs) are among the many hottest cryptocurrencies as we speak. They’re designed for use in video games and on-line purposes. For instance, a gaming NFT token can symbolize possession of digital gadgets or digital property inside gaming purposes.
These digital property have distinctive traits and can’t be replicated or cloned. NFTs are usually minted on Ethereum, though different blockchains have additionally been used for this objective—we have checked out the best sites for minting NFTs.
A well-liked living proof of a gaming/NFT token is Axie Infinity (AXS). Axie Infinity is an NFT-based recreation identified for its in-play digital financial system. Gamers gather and commerce digital pets often called Axies. Axie Infinity (AXS) can also be tradeable on main exchanges, which makes it distinctive.
Different forms of Gaming/NFT tokens embody Enjin (ENJ), Chiliz (CHZ), Gala (GALA), The Sandbox (SAND), and Dencentraland (MANA).
4. Sensible Contract Cryptocurrencies
Smart contracts are self-executing contracts that can be utilized to make transactions. They’re a sort of program code that runs straight on the blockchain, eradicating the necessity for any third get together to course of the contract. On this manner, good contracts permit for the automated execution of agreements between two or extra events in a clear and verifiable manner.
MakerDAO is a decentralized software program platform, and its Maker (MKR) token is an ideal instance of a sensible contract cryptocurrency. Maker (MKR) is the governance token of MakerDAO that enables customers to problem and handle the DAI stablecoin. MKR tokens are wanted for voting rights within the improvement of the Maker Protocol.
Polymath (POLY) is one other cryptocurrency making waves within the good contract class. Polymath (POLY) provides a platform that enables verified buyers to take part in securities token choices (STOs) utilizing the Polymath ST-20 commonplace.
Extra cryptocurrencies on this class embody Miota (IOTA) and Stellar (XLM). These tokens can be utilized for governance protocols, automated escrow methods, and marketplaces that use good contracts to facilitate the trade of products or companies.
5. Privateness Cryptocurrencies
Cryptocurrencies which can be privacy-focused are available varied types and shapes. Privacy cryptocurrencies allow nameless and personal transactions. These cash/tokens do not require private data to make use of or commerce with.
Monero (XMR) is a decentralized cryptocurrency with privacy-enhancing applied sciences that masks transactions to realize anonymity and fungibility. This makes Monero consumer transactions, pockets balances, and buying and selling exercise extraordinarily onerous to decipher. Consequently, this cryptocurrency provides next-level privateness.
Zcash (ZEC) is one other privacy-focused cryptocurrency. It makes use of advanced-level cryptography to offer enhanced privateness for its customers. Zcash is predicated on Bitcoin’s codebase and shares some similarities, equivalent to a set provide of 21 million tokens.
Extra privacy-based cryptocurrencies embody Secret (SCRT), Sprint (DASH), Decred (DCR), Nightfall Community (DUSK), and Verge (XVG).
6. FinTech Cryptocurrencies
This closing categorization focuses on cryptocurrencies that use blockchain know-how to create new purposes and monetary merchandise.
Ethereum, the second largest cryptocurrency by market capitalization, heads the checklist of cryptocurrencies in Fintech. Its blockchain has been used to create foreign money (Ether) and likewise serves as a constructing platform for a plethora of decentralized applications.
Solana is one other blockchain with monetary and technological attributes. It’s a high-performance blockchain with a local foreign money referred to as SOL. It helps builders around the globe in creating crypto apps with its scalable blockchain infrastructure.
Extra cryptocurrencies within the FinTech class: Polygon (MATIC), Algorand (ALGO), Fantom (FTM), Avalanche (AVAX), Cosmos (ATOM)
Cryptocurrency Categorization Is Nonetheless Evolving
There are quite a few methods to categorize cryptocurrencies, and it is essential to notice that some cryptocurrencies included in these classes can match into multiple class kind. Nonetheless, as blockchain know-how and cryptocurrencies evolve, and new use instances are found, extra cryptocurrency classifications will come up.