What Are the Four Types of Cryptocurrencies?

August 21, 2022 Adam

When it comes to understanding the specifics of cryptocurrency, there are four types that you should be familiar with. Websites of the official trading platform make the best utilization of artificial intelligence and perfect trading strategies to help newbie traders in their trading journey. Fiat cryptocurrencies are fundamental types of any currency, which involve real-world government currency such as USD or Euros.

The currencies are not encrypted, but they usually offer some security through increased regulation and protection from wild inflationary trends by central governments. In addition, cryptocurrencies like Ripple offer an alternative to banks using XRP as a network for cross-border payments.

The second type is decentralized cryptocurrencies or tokens (or digital assets). These are not controlled by a major party and can be traded peer-to-peer. While decentralized currencies like Bitcoin and Ethereum have taken off, the trade of cryptocurrencies has not achieved the success they deserve. The decentralized currencies are further categorized into four categories that are payment currencies, blockchain economies, privacy-focused cryptocurrencies and stablecoin. Let’s discuss all four types of cryptocurrencies in detail.

1. Payment Cryptocurrencies:

In this category, cryptocurrency is used to make payment transactions. Bitcoin was created as an alternative way to make payment transactions, as traditional payment systems like banks are slow and involve a lot of fees. The perk of Bitcoin has been that while it’s easy to buy and sell, there is also an incentive for people to use the currency. Lite coin is another potential example of payment currency.

2. Blockchain Economies:

The underlying technology of cryptocurrencies is blockchain, a way to verify ownership on the internet. Ethereum was created as a network for smart contracts, while Ripple uses XRP as a protocol for cross-border payments. In addition, it gives them advantages in trading volumes, security and ease of use.

3. Privacy-Focused Cryptocurrencies:

These types of cryptocurrencies are decentralized or private while incorporating confidential transactions on the network. For example, Monero was created with privacy, making it very appealing to traders who wanted to trade without being tracked by authorities or creating any public record about their existence. Monero is a perfect example of a focused privacy currency. Some famous privacy-focused cryptocurrencies are Monero, Z-cash, and Dash.

4. Stablecoins

Stablecoins are digital currencies pegged to fiat currencies like USD or EUR. Still, these cryptocurrencies are artificially kept at a stable rate through algorithms and deals with other suppliers in the market. Stablecoins are created by market players and leverage on partnerships between big companies to keep their price stable through centralized control and a large reserve of tokens that can effectively stabilize the rates.

The role of stablecoin is to offer stability to cryptocurrencies and fiat currencies. The benefit is that it’s much easier to trade stablecoins than digital tokens or decentralized cryptocurrencies. Tether is a famous example of the typical stablecoin, which works by locking in the price value of fiat currency, such as a $1 USDT token for every US dollar deposited in the bank account. The idea is that when you have your money in your bank account, it gets locked at a $1 value against the USD or any other fiat currency. In addition, you’ll get an equivalent number of Tether coins in exchange for this locked-down amount.

Why are payment cryptocurrencies like bitcoin more popular?

While payment cryptocurrencies are decentralized, numerous factors aggressively impact the spot value of bitcoin. Because of their volatility, payment currencies are attractive and lucrative to traders; also, bitcoin has attained an exciting institutional adoption in the last few years. The volatile bitcoin market has offered traders and investors a solid potential to earn profits daily. The value of bitcoin in countries like Venezuela has shot up over 1000% because of the hyperinflation and scarcity of resources.

Buying bitcoins in this country is much easier because it offers an alternative way to trade without the dollar or local currency. The problem with other payment cryptocurrencies, litecoin, is the extreme volatility and lack of intrinsic value, making it difficult to accept such digital tokens as a form of payment in business transactions and investment opportunities. The

Right now, it’s still too early to judge the benefits and disadvantages of bitcoin, but we are sure that the global adoption of cryptocurrency will eventually settle. Bitcoin also offers a standard for international payments and a decentralized digital currency. It’s a straightforward way to transfer funds between people. Traditional banks charge high fees to transfer money between countries. They often also ask for expensive forms of identification to verify your identity before they let you transact with them. Bitcoin doesn’t have that problem since it works on blockchain technology.