Cryptocurrencies are no longer a technological fantasy that we read about online. They are part of our daily lives and are used by millions of people worldwide. They have also evolved significantly, with thousands of coins being traded and many more being launched yearly.
These coins are now also more widely accepted. From global brands to the gambling sites found on casinos.com, the acceptance of crypto as a form of payment has spread like wildfire. This has, in turn, accelerated the development of new types of coins and methods to manage certain currencies.
Despite the continuous development of new systems and coins, public knowledge of these coins and how they work has lagged behind. Many don’t know that various types of cryptocurrencies are distinguishable by more than just their name and value.
Specifically, crypto is no longer as simple as a decentralised coin managed and traded through a blockchain. The advent of altcoins and stablecoins has changed things slightly, though these two new types of coins attract many users who may even not realise the difference.
To help clarify things, we’ve examined the core differences between the various types of coins to determine what sets them apart and which, if any, is better to use.
Cryptocurrency (Bitcoin)
Cryptocurrency remains the primary category when it comes to the types of coins available on the market. This category is mostly formed around the original crypto, Bitcoin. Bitcoin’s sole purpose is to be used as a store of value or a digital currency that can be traded through a decentralised database.
Cryptocurrency uses blockchain technology and a system called Proof of Work (PoW) to achieve this purpose. The PoW is what gives the crypto coins their high level of security, as each transaction needs to be approved after a stringent calculation to prove its validity (or the PoW).
Because crypto was the pioneer and has therefore been around for quite a while now, people generally trust it more because they (at least somewhat) understand the technology behind these coins. Nevertheless, there are still some downsides to these types of coins.
Chief among these is their volatility. While cryptocurrencies can experience massive increases in value, they are also known to experience sharp and sudden plummets that leave investors reeling. These coins also have scalability issues, as many have a fixed number of coins available and require extensive resources.
As such, the development of other cryptocurrencies, such as altcoins and stablecoins, has been prominent in recent years. Each aims to fix a negative trait in traditional crypto.
Altcoins
Often described as any coin other than Bitcoin, altcoins are cryptos forked from existing blockchains, including Bitcoin. However, they offer different verification or processing methods and advanced functionality that differs from Bitcoin.
The first identified altcoin was Litecoin, launched in 2011 through a fork in the Bitcoin blockchain. The largest difference between altcoins and traditional crypto like Bitcoin is that altcoins attempt to be functional for various use cases, including smart contracts.
Another defining trait is that altcoins use different blockchain technologies and consensus mechanics to confirm transactions on the public ledger. As mentioned, many of these changes are the result of attempting to exceed the functionality of coins like Bitcoin or fix the limitations existing coins may incur.
Because of this different approach, these coins are often more innovative than regular crypto and can be tailored for specific cases. This tailored approach also offers greater potential for value growth.
As with crypto like Bitcoin, however, there are some significant downsides. The greatest of these is that altcoins are incredibly volatile—even more so than Bitcoin. Because they often test new concepts, these coins experience much more dramatic rises and falls in value. They also tend to be used for online crypto scams and other illicit purposes.
Stablecoins
One of the main factors preventing users from adopting cryptocurrency and altcoins as a daily form of payment is their volatility. Stablecoins were created to address this issue and provide a more stable and manageable bridge between fiat currency and crypto.
These coins do this by tying (or pegging) their value to another asset or commodity. The first stablecoin, BitUSD, launched in 2014 and pegged its value to another crypto asset. This helped it achieve a 1-on-1 value with the USD. However, as it was crypto-backed, it lost this value in 2018 and has since crumbled.
Later the same year, however, Tether launched. This crypto, still popular today, was the first to peg its value to a fiat currency—the USD. This helped stabilise the coin’s value and has made it significantly more attractive to users who may be sceptical of regular crypto due to its volatility.
Although the technology of stablecoins is similar to that of Bitcoin and altcoins, pegging to another commodity has made them significantly less volatile. This has also made them more accessible and helped facilitate daily transactions more easily.
The biggest concern with stablecoins is their ability to remain decentralised due to their relationship with other commodities. This, and the potential to be de-pegged (as with BitUSD), has made some people wary about investing in them despite their low volatility.
Conclusion
Cryptocurrency has come a long way since Bitcoin’s launch. With the establishment of thousands of new coins and the development of two new types of coins, there seems to be no slowing down of the innovation surrounding this unique form of currency.
Many of the new coins that are in development will provide payment or financial services, allow infrastructure transactions (such as smart contracts), or aid in content creation.
As this happens, the uptake of using crypto will also likely increase. Those concerned about the viability of crypto can opt for stablecoins, which hold some level of guarantee. However, those looking to throw caution to the wind and hope for large returns should opt for Bitcoin or other altcoins. Either way, it is likely that crypto will play an increasingly prominent role in our financial lives moving forward.
