What Are Cryptocurrencies?

If you don't know anything about cryptocurrencies but want to start learning about them in a fairly simple and straightforward language, without complexities, look no further, this is your place. Let's dive right into the matter, shall we?

Cryptocurrencies can be multipurpose and although many of them can be used as "money" to pay for things, not all of them are created specifically for that.

Bitcoin is the first blockchain in history and has its cryptocurrency called BTC, the system was created in 2009 by Satoshi Nakamoto to be a means of payment from person to person a.k.a. "Peer-to-Peer Cash System".

Ethereum is the second most important blockchain and has its cryptocurrency Ether used as gas to pay for the use of computing power in this decentralized supercomputer.

Both BTC and ETH are cryptocurrencies that are considered "Currency", but there are also cryptocurrencies called "Tokens" that run on blockchains like Ethereum, for example, BAT, UNI, and AAVE.

Don't worry, now I'll explain it to you in more detail.

Coins vs Tokens

Currently there are multiple types of cryptocurrencies with many uses but first we must clarify the main difference between them. There are two types of cryptocurrencies: coins and tokens.

Blockchains have their native "Currency" but thanks to the blockchains that facilitate smart contracts, "Tokens" can be created, which are cryptocurrencies that can represent basically anything, whatever the mind imagines.

Currencies: Refers to cryptocurrencies such as BTC, ETH, and DOT. They are considered as "currencies" since they are the native currencies to the blockchain. BTC belongs to the Bitcoin blockchain, ETH belongs to the Ethereum blockchain, and DOT belongs to the Polkadot blockchain.

Tokens: The «tokens» are cryptocurrencies that are created on a blockchain, but they are not the native currency of this. There are many kinds of tokens with different specifications and they can represent many things but as an example, the cryptocurrencies BAT, USDC, and UNI run on the Ethereum blockchain.

Another example is the Fan Tokens. Those are sport clubs tokens [mostly football clubs tokens] like Barcelona Token, AC Milan Token, Lazio Token, among others, all of them run on the Chiliz blockchain by Socios.com. CHZ belongs to the Chiliz blockchain.

Types of Tokens

Tokens are digital assets or titles created through a smart contract on a blockchain. These can represent multiple things: they can represent currencies like the dollar or commodity like gold, they represent voting rights to govern protocols, they represent birth certificates, marriage certificates, they can represent digital assets such as works of art, domains, land in virtual worlds and they can even represent shares of a company.

There are 3 types of tokens on the blockchain:

1. Fungible tokens: tokens like LINK, DAI, USDC, are fungible tokens because it doesn't matter which LINK tokens you have, they all represent the same and are worth the same, which allows them to be added and divided between them.

2. Non-fungible Tokens: Known as NFT, non-fungible tokens represent a single asset, representing things that are scarce, indivisible, and unique. These are used to represent things like collectible digital art, video game assets like land, weapons and clothing, contracts, birth certificates, marriage, property, keys, and more.

3. Security Tokens: These tokens represent a "security", a title of a share of some company. Normally access to these tokens is limited to qualified investors and can only be accessed by registering your identity.

What are Stablecoins?

Stablecoins are tokens that offer stability in value, these are normally backed by currencies such as the dollar or commodities such as gold. Stablecoins play a fundamental role in the crypto world since they allow the use of cryptocurrency technology without its volatility, this allows fast payments, loans, savings accounts, and much more. Some examples of stable coins are:

DAI: It is a decentralized stablecoin backed by other cryptocurrencies and regulated by a series of smart contracts that aim to maintain one-to-one parity with the dollar.

Tether (USDT): Tether is a centralized stablecoin that is equivalent to 1 dollar, each Tether token is backed by 1 dollar in a bank account.

Digix Gold Token (DGX) - DGX is a centralized gold-backed stablecoin. Each DGX is backed by 1 gram of vaulted gold.

Blockchain and cryptocurrencies are relatively new technology, which is why different currencies come out every day. You have to be careful before investing in an asset since the creation of a currency is not difficult since the source is open.

Therefore, read about cryptocurrencies, learn about them and ask any questions before investing.

You can check the market capital, here:

Bitcoin: https://coinmarketcap.com/currencies/bitcoin/

Ethereum: https://coinmarketcap.com/currencies/ethereum/

Tether: https://coinmarketcap.com/currencies/tether/

Disclaimer: This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.

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