What is Cryptocurrency? Types and Functions Explained

A digital currency that does not depend on any banks and financial institutions is called cryptocurrency.
With cryptocurrency, transactions can be verified and new currency units can be created without the help of central banks or other reliable institutions. Instead, it employs encryption to secure transactions on a blockchain, a type of openly accessible distributed ledger.

Right now, that definition may seem incredibly obscure. However, after reading this overview, you won’t require a decryption key to comprehend cryptography.

There are tens of thousands of distinct cryptocurrencies in use, each with a distinctive value. Bitcoin (CRYPTO:BTC), the first cryptocurrency, was created in 2009 by a programmer going by the alias Satoshi Nakamoto.

What Are The Types of Crypto Coins?

There are three important types of cryptocurrencies in the market, that includes bitcoins, altcoins and tokens.

Bitcoins Explained:

There are no physical bitcoins, but only the balances kept on a decentralized public ledger system, known as a blockchain. These balances of Bitcoin tokens are subsequently kept using public and private keys to decrypt the encryption. To put it in simpler understanding, the public key is like your bank account number for you to send or receive bitcoin. In comparison, the private key is a secret key for you to authorize a bitcoin transmission.

As a cryptocurrency that functions exactly like fiat money, Bitcoin is recognised as a form of payment for goods and services. Bitcoin’s attractive exchange rate versus the dollar, which attracts potential investors and traders despite its decentralised nature, is what makes it so intriguing. Bitcoin continues to be a widely used kind of cryptocurrency despite not being legally tender, and it has motivated numerous developers to release their own cryptocurrencies, which are referred to as “altcoins.”

Altcoins Explained:

If you are interested to know what are altcoins, then the simplest answer is that all other cryptos other than BTC are termed as altcoins. The sole cryptocurrency at first was Bitcoin, but later, other initiatives started to appear. Hence, altcoins were born. Have you heard of Bitcoin Cash, Monero, Litecoin, Ethereum, or Ripple? They all developed from their native platforms and native blockchains, and they all diverged slightly from the Bitcoin blockchain.

Simply said, by altering the regulations to appeal to different users, they were created to compete with Bitcoin. Ironically, the market is still primarily dominated by the 10-year-old granddad even though some of them still pose a threat to Bitcoin after all these years. All other cryptocurrency coins are now commonly referred to as altcoins or alternative coins.

Tokens Explained:

Tokens for cryptocurrencies are now typically created to launch the ecosystem for cryptocurrencies. It almost functions like bonus miles, you know. While collected miles cannot be used to purchase bread, they can be used to purchase airline tickets, and the more miles you have, the better it is for the ecosystem of the airline. With cryptocurrency tokens, the same method works!

There are several useful examples later in the article, so don’t worry. For now, simply be aware that crypto tokens can readily be produced on top of other platforms and don’t always have their own native blockchains. Tokens frequently have a specific purpose, such as voting for changes or paying users for participating in the network, in contrast to cryptocurrency coins that act as a form of currency.

Supple And Demand of Crypto:

More than any other aspect, supply and demand determine the pricing of the majority of commodities. The number of coins in circulation and the price at which individuals are ready to pay have a significant impact on the market value of bitcoin. The total number of coins in the cryptocurrency is limited to 21 million by design; as the circulating supply approaches this limit, prices are projected to increase.

When the limit is hit, there will be no more money to be made from mining Bitcoin, so it is difficult to anticipate what would happen to pricing. Bitcoin’s price will probably change in reaction to any activities that major financial actors take as they struggle for ownership in a situation of decreasing supply.

How Crypto Market is Functioning:

Because cryptocurrency markets are decentralised, no single entity, such as a government, issues or supports them. Instead, they move through a computer network. Cryptocurrencies can, however, be purchased and traded through exchanges and kept in “wallets.”

Unlike conventional currencies, cryptocurrencies only exist as a decentralised blockchain-based shared record of ownership. Users send bitcoin units to one another’s digital wallets when they desire to exchange them. A procedure known as mining is used to verify the transaction and add it to the blockchain before it is deemed complete. Additionally, this is how new bitcoin tokens are typically produced.