The cryptocurrency market remains a hot topic for proponents and sceptics alike, especially now that Bitcoin has become the latest digital asset governments are starting to regulate. The NFT craze is just the latest example of rising crypto market trends.
There are plenty of different use cases and applications for the 6,500-plus cryptocurrencies currently in circulation: Some may fit the digital asset description perfectly, while others are more like digital money.
At the time of writing this article, Bitcoin is the first cryptocurrency ever to be recognised by a government as a legal tender, equal to currencies like the US dollar, Euro, or UK pound sterling. As cryptocurrencies get more recognition and adoption, staying informed is paramount, especially if you’re investing in crypto assets.
Payment cryptocurrencies
The most prevalent types of cryptocurrencies are those developed to replace fiat currencies. The first crypto considered to be digital money was Bitcoin. It propelled the industry and drew the IT community’s attention towards blockchain technology.
Cryptocurrencies used solely for payments most often use a network of specialised computers to log and verify transactions. These networks are decentralised and serve as a replacement for financial institutions that would process your payment in traditional commerce.
Other popular cryptocurrencies used as a store of value are Bitcoin Cash, Decred, and Litecoin, among many others.
Platform-based cryptocurrencies
Some crypto projects are building platforms where users can create and run their applications on the blockchain. Various use cases include building systems for decentralised finances, software infrastructure, and connecting multiple blockchains.
These platforms have tokens that serve as assets for running applications and incentives for users who expend their computing power to run the network.
Ethereum is the largest cryptocurrency project that provides a platform for applications, smart contracts, and other services. Other popular crypto projects trying to accomplish a similar goal are Polkadot, Eos, and Tron.
Stablecoins
The volatile nature of the cryptocurrency industry highlighted the need for coins with stable values. Stablecoins were created to circumvent that specific problem by offering consistent value tied to other types of assets, like fiat currencies and gold. They allow users to enjoy the benefits of blockchain technology, such as near-instant international transfers, without worrying about sudden changes in the worth of their assets. All that’s required for such a transaction is a cryptocurrency wallet app that users can download to any smartphone. Such transactions have low or nonexistent fees, making them preferable to transfers conducted using fiat currencies and traditional financial institutions.
Tether, USD Coin, and Binance USD are the most commonly used stablecoins, and all three are tied to the US dollar.
Privacy coins
Privacy coins emerged to address the increased need for anonymity, as most cryptocurrencies have public ledgers that showcase the complete transaction history of each wallet address.
Unless you are using a cryptocurrency exchange, a wallet address is not associated with a name or any other personally identifiable information. However, after enough transactions, you can potentially be identified through detailed analysis.
Cryptocurrencies like Monero, Dash, and Zcash obscure transactions by disguising their origin to make it impossible to intrude on users’ privacy.
Utility tokens
Utility tokens are cryptocurrencies associated with projects that integrate blockchain technology and various services like rendering, storage, advertisement, healthcare, casinos, etc.
Basic Attention Token, Siacoin, and Storj are the most obvious examples of utility tokens. Storj and Siacoin are issued as a reward to individuals renting out the platforms’ computers for data storage. Basic Attention Token is a cryptocurrency associated with the Brave browser and rewards users for viewing advertising material.
NFTs
NFTs or non-fungible tokens are the latest digital assets using the blockchain technology of infrastructure-based cryptocurrencies. They are unique digital collectible items such as images, videos, music, or even in-game items.
These tokens are non-fungible because they are not interchangeable, i.e., they are one of a kind. The digital files they stand for are made “unique” using identifying codes for originality and proof of ownership.
NFTs are not just digital creations made explicitly for the purpose of being traded as such, but also include media that already exists somewhere, like video clips from NBA games. These tokens are on the blockchain and most often on Ethereum’s platform. They can represent digital and physical items, too: Designer sneakers were previously sold as an NFT.
Protecting your crypto assets
Asset protection is an important topic in the crypto world. As this is relatively new technology, most people won’t be familiar with the best practices of storing crypto.
For example, using exchanges as a storage location for crypto is the first mistake newcomers make. Hackers have targeted these exchanges before and been successful more than a few times. One of the most prominent examples was the attack on the Bitcoin exchange Mt. Gox. Hackers managed to steal around 650,000 BTC, which would be worth upwards of $27 billion at the time of writing this article.
To avoid this sort of debacle, it’s preferable to use hardware wallets for storing large amounts of cryptocurrencies, and have a software wallet app for smaller day-to-day transactions. Most hardware wallets use a backup seed phrase if your device gets damaged, and storing it in a secure spot is a necessary precaution.
Before you decide to join an exchange, invest in a hardware wallet, or download a wallet app, make sure your choice is thoroughly informed. Reputable exchanges use advanced security features and insure users’ funds against loss caused by platform issues. Finding a good hardware or software wallet nowadays isn’t as hard, and there are plenty of options to choose from, but you should still seek a second and third opinion before getting one.
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