Around 10 years ago, most people had no idea what cryptocurrency was. Today, most people have at least heard of the term, while the market as a whole is worth hundreds of billions of dollars.
Yet despite the growing popularity, many people remain unclear about what cryptocurrencies are. So how does cryptocurrency work, and what are some different types?
Keep reading for a guide that will help you wrap your head around the different types of cryptocurrency.
What Is Cryptocurrency?
Before talking about some of the types of cryptocurrency, you should first have an understanding of what it is. A cryptocurrency is a digital form of money that differentiates itself from traditional currencies via technology.
Whereas traditional currencies rely on banks, governments, and other mediums, cryptocurrency does not. It eliminates the middle party and instead uses a decentralized system known as blockchain. This uses computers to initiate and confirm transactions.
Most experts consider Bitcoin to be the original cryptocurrency. Created in 2009 on an open-source platform, it has since become the most popular type of digital currency.
Bitcoin relies on blockchain technology to make transparent transactions that everyone can see. However, an algorithm secures the transactions, preventing anyone but the owner from accessing them.
Ethereum is another type of cryptocurrency that developers created in 2015. It also uses blockchain technology, which means that your transactions are safe, and runs on an open-source platform.
Ethereum is unique in that it can also run the programming code of different decentralized applications. This means that application developers can use it to pay for transaction fees and services.
Litecoin came out in 2011 as an alternative option for Bitcoin. As is the case with other types of cryptocurrencies, developers created Litecoin using open-source software.
Although the two are similar, there are some differences between Bitcoin and Litecoin. Litecoin has a faster transaction time and also has a coin limit of 84 million (Bitcoin has a limit of 21 million). They also run on different algorithms, with Litecoin using Scrypt, and Bitcoin using SHA-256.
Developers came out with Ripple in 2012 as a form of cryptocurrency and digital payment network. It aims to create a fast, safe, and cheap way to transfer money.
Ripple is unique in that it allows you to exchange any type of currency, from RMB to Bitcoin. It also connects to banks and is meant to move large sums of money, as opposed to smaller transactions. To check the value of different cryptocurrencies, calculate for free on Calc2web.com.
Decide Between the Different Types of Cryptocurrency
For many people, it can be difficult to wrap your head around the idea of using digital currencies. The five currencies mentioned in this guide are some of the many different types of cryptocurrency. If you’re looking to invest in cryptocurrency, working with one of these five can be a good idea.
Do you now have a better understanding of the types of cryptocurrency? Before you go and start investing, take a moment to check out some of our other blog posts for more guides and tips.