Many new investors know that Bitcoin is the daddy in the market but may not understand the difference between cryptocurrencies. There were over 7700 cryptocurrencies at the time of writing this article, and maybe before you blink your eye, the number will be around 10,000.
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Did you blink?
Developers create new cryptocurrencies every day, and every savvy investor will like to know why there are so many of them and be able to tell the differences.
We wrote this article to help you do just that and hope you would have become a professional at distinguishing cryptocurrency by the time we conclude.
What is the difference between Different Cryptocurrencies?
A simple way to find out the differences between cryptocurrencies is to classify them. Although there are thousands of cryptocurrencies, they easily fall under the five categories we’ll reveal next.
Bitcoin, as you may already know, was the first cryptography-backed currency.
Satoshi Nakamoto, the unknown person or group behind Bitcoin, released the Bitcoin whitepaper on Oct 31, 2008. The network went live on January 3, 2009, and has since given birth to an industry worth over $500 billion.
No one can dispute Bitcoin’s position as the leading cryptocurrency since it constitutes more than 60% of the entire market for crypto-assets. Bitcoin is usually the first asset that most new investors buy, and large corporations also hold substantial amounts of Bitcoin.
Learn: How to Buy Bitcoin in the UK
But just as with every revolutionary technology, there was room for improvement in what Satoshi had done with Bitcoin. The search to improve Bitcoin was what led to the birth of most alternative coins (altcoins)
Before we talk about altcoins, though, there is a breed of cryptocurrencies that directly copy the Bitcoin protocol.
Bitcoin forks have nothing to do with kitchen forks (LOL). It’s a general term used to describe cryptocurrencies that use the original Bitcoin protocol or software while enforcing some slight changes.
Most coins created from Bitcoin forks are contentious and, most times, fail to survive or claim any significant share of the crypto market. For instance, even though statistics suggest that there are over 105 bitcoin forks, only four of them make the list of the top hundred cryptocurrencies by market cap.
The four top Bitcoin fork coins include:
- Bitcoin Cash (BCH)
- Bitcoin SV (BSV)
- Bitcoin Gold (BTG)
- Bitcoin Diamond (BCD)
Altcoins is a general term that refers to any cryptocurrency that is not Bitcoin. As noted earlier, these cryptocurrencies generally advertise themselves as better alternatives to Bitcoin and improved on some of Bitcoin’s features.
For instance, the largest altcoin, Ether (ETH), is the native token of the Ethereum blockchain. Ethereum improved on Bitcoin’s technology by devising a way for developers to launch decentralized applications that live on the blockchain and execute contracts independently.
There is also a clear difference between Bitcoin and Ripple XRP, and some altcoins like Litecoin, Stellar, Electroneum, Digibyte, and Dash that claim to be faster and cheaper payment currencies.
At the same time, others like Monero (XMR), and Zcash (ZEC) offer advanced privacy features.
Tokens are different from coins and refer to crypto-assets that do not have a native blockchain. Developers create tokens on an already built blockchain such as Ethereum and aim to use the tokens for different objectives.
Here are some classifications of tokens:
- Utility tokens: These are tokens that allow users of a decentralized app to pay for or receive rewards for the products and services they consume. An example is the Basic Attention Token (BAT), which rewards users for viewing ads on the Brave Browser.
- Security Tokens: These are tokens representing traditional securities such as company shares, bonds, and real estate. Private companies usually issue them to raise funds for their business.
Learn more about the difference between coins and tokens here.
Stablecoins, as the name suggests, are coins that have a stable value. Unlike the price of Bitcoin or other cryptocurrencies that fluctuate now and then, these coins are designed in a way that allows them to maintain a regular market price.
A common way to achieve this stable valuation is by pegging these assets to a fiat currency such as the Dollar, Euro, British Pound, Yen, etc. A company issues stablecoins to users and maintain a fiat or asset reserve that matches or exceeds the coins they put into circulation.
There are other stablecoin pegging mechanisms such as that used for Ethereum-based stablecoin, DAI, where investors must deposit other cryptocurrencies before they can mint a lower value of DAI tokens.
Stablecoin is useful for crypto investors to reduce losses in the event of a market decline. Investors can simply convert their Bitcoin or crypto into a stablecoin and wait until the storm passes.
The most popular stablecoins today include Tether (USDT), USD Coin (USDC), Gemini Dollar (GUSD), and Binance USD (BUSD).
Different Cryptocurrencies Explained: What to Keep in Mind
The fact that many cryptocurrencies are offering different features doesn’t mean that all of them are useful or will be successful investments. Research carefully the difference between cryptocurrencies and only put your money in projects with good tokenomics, a solid track record, a strong team, and a vibrant community. Bitcoin fits those criteria, and there are probably a handful of projects that you can use or invest money in for future profits.
In this article, we kept our promise to explain the difference between cryptocurrencies. To do that, we provided a precise categorization that can help you sort them out yourself.
We believe you can no longer be among those who buy stablecoins and spend many months waiting for the value to go up (LOL). Instead, you’re better informed to decide which cryptocurrencies you want to use, trade, or hold.