Cryptocurrencies

Know the four types of cryptocurrencies according to their usefulness

Know The Four Types of Cryptocurrencies Based On Their Utility

The cryptocurrency market in 2021 is worth over $2.2 trillion, data from Coinmarketcap.com shows as of December 14.

In 2011, the cryptocurrency market was worth just $10 million. According to a report in Statista, the crypto market first reached a market cap of $10 million on February 9, 2011. On November 10, 2021, the crypto market cap was $3048.57 billion. , or about $3 trillion, showed the same

Only a handful of cryptocurrencies existed at the time, and the main purpose of most of them was to provide a cheap and fast alternative to the US dollar for cross-border payments.

As of December 13, there are more than 15,000 cryptocurrencies, according to coinmarketcap.com and more are being added every day, though it remains to be seen how many ultimately remain.

Former Reserve Bank of India (RBI) Governor Raghuram Rajan estimates that of the approximately 6,000 cryptocurrencies in existence today, most will perish. “Only one or two, or at most a handful, would survive,” he told CNBC-TV18 last month.

But there are different types of cryptocurrencies. “Crypto can be categorized into different categories, like DeFi, NFT, utility tokens, value storage tokens like bitcoin and litecoin, and yield farming tokens like Aave,” explains Sidharth Sogani, CEO of Crebaco, a crypto research company.

Based on their usefulness, we have broadly classified cryptocurrencies into four types.

Change

The world’s first cryptocurrency, bitcoin, was designed for this utility. The aim was to make cross-border payment transactions cheaper and faster. Over the years it has proven to be a store of value. While in 2009 one bitcoin was roughly equal to $1, its value has now risen to $48,000, according to data from coinmarketcap.com.

“Crypto(s) can be used on any decentralized public blockchain. It is as if the Ethereum blockchain has Ether as its token. Solana Blockchain has Sol as a token. Thus, the tokens allowed developers and the public to use this particular blockchain using its native tokens,” says Sogani.

Active

Stablecoins can be classified as assets because the value of these cryptocurrencies is derived from the value of an external asset. For example, USDT derives its value from the US dollar. GLC gold is tied to the value of gold. Previously, if investors decided to exit a cryptocurrency, they could exchange it for any other crypto (which may or may not be preferable) or fiat currency. Now, due to the availability of stablecoins, they might choose to stay in the crypto ecosystem by exchanging their cryptocurrency for more stable crypto while they decide on the next preferable choice.

“It (cryptocurrency) includes the characteristics of a commodity as well as a currency, much like a hybrid. Commodities can also be used to settle a transaction. They don’t have a direct impact on the economic structure of a country, so considering them as a commodity is fine,” says Sogani.

Object

Many buyers believe this is where the future of cryptocurrencies lies. These types of cryptocurrencies were created to finance special projects aimed at solving problems in the world. For example, Siacoin (SIA) aims to solve the problem of expensive cloud storage. As mentioned on their official website, “Sia is the leading decentralized cloud storage platform. No registration, no server, no third party trust. Sia leverages blockchain technology to create a more robust and affordable data storage market than traditional cloud storage providers.

Another example is Decentraland, which is an Ethereum-based application where users can purchase virtual land (based on NFT) using its cryptocurrency (MANA). Likewise, there are many other cryptocurrencies that provide this type of utility.

Terra (LUNA) strives to become the stablecoin provider for e-commerce payment and make decentralized finance (Defi) accessible to the common man. “Terra is a public blockchain protocol deploying a suite of decentralized algorithmic stablecoins that underpin a thriving ecosystem that brings DeFi to the masses,” its website states.

Meme or joke piece

These were created strictly for fun with no specific purpose or purpose, but they are worth millions now. For example, Dogelon Mars (ELON) was created as a joke. It is supposed to facilitate “interplanetary monetary transactions” when it becomes viable. Its market capitalization is over $500 million as of December 13, according to coinmarketcap.com.

“Meme coins have no purpose and are highly speculative assets that operate on the simple idea of ​​inflated community-based commerce. Most of them don’t have use cases. Nascent investors should stay away from these risky cryptos. They can go bankrupt, which means their value becomes zero at any time. Like what happened recently with the Squid crypto. Its owner got away with millions of dollars in investor money,” says Sogani.

But some have stood the test of time so far. Dogecoin and Shiba Inu both started their journey as meme coins in their early days, but they are now part of the crypto race. “Working with Doge developers to improve system transaction efficiency. Potentially promising,” Tesla CEO Elon Musk tweeted this week. Dogecoin developers are now working to make their coin a serious competitor for bitcoin.

Shiba Inu founder Ryoshi recently revealed that Shiba Inu Core Devs (SICD) is working on developing his metaverse known as “Oshiverse”. According to a report on Yahoo Finance, the anonymous developer said, “We are working on so many aspects of Shiba Inu including Shibarium, Shi, Shibanet, The Decentralized Shiboshi Game, Incubator and more that will only become apparent in a near future. to come up.”

But like any cryptocurrency, caution is the key that investors should never ignore.