An Introduction
Since the advent of Bitcoin the crypto industry has come a long way. While some cryptocurrencies emerged from the source code of Bitcoin, others have their own blockchain networks with specific use cases. If you are confused and wondering how to differentiate the various types of cryptocurrencies, this is the article for you.
Bitcoin
Bitcoin is the original cryptocurrency and the largest by market capitalization created as an alternative version of virtual cash that wouldn’t rely on a government or financial institution, such as a bank, to function and facilitate payments. Like many cryptocurrencies, Bitcoin is powered by blockchain technology, which works as a digital, decentralized ledger that keeps track of transactions made within the network. In addition, Bitcoin also has a built-in limited supply of 21 million coins that ensures that bitcoin remains a scarce asset so that, theoretically, as demand increases and supply remains the same, Bitcoin’s value increases as well. Source
Altcoins
Altcoins are any cryptocurrencies other than Bitcoin and Ethereum. Although some of these digital tokens may operate similarly to Bitcoin, they are built on different blockchain networks. There are thousands of altcoins, which are typically created with a specific purpose in mind. A stablecoin (see below), for example, is a type of altcoin that pegs its value to another asset, such as gold or the U.S. dollar, with the goal of stabilizing its price. Outside of stablecoins, many altcoins derive their value from market demand and traders’ preferences but that can make them particularly vulnerable to rapid and unexpected changes in price, Additionally, with so many altcoins available, it’s important to be on the lookout for potential scams. One of the most common types of crypto investment scams encourages you to purchase a large amount of a given coin, then transfer it to the scammer’s wallet. Source
Stablecoins
Stablecoins (SCs) are a subset of altcoins and are designed to maintain a stable value by pegging their price to assets like the U.S. dollar or gold. Technically, a stablecoin’s market value can be pegged to any asset and, as such, there are no “best” stablecoins, although it has become standard practice to have their value pegged to the U.S. dollar. Some advantages and disadvantages of Stablecoins are that they
- maintain all the transactions within crypto exchanges so, for example, if you want to buy more Solana with your Ether, you can swap your Ether for SCs at a U.S. dollar value and then buy more Solana;
- save on fees and maintains the value of your crypto during volatile trading periods because many crypto exchanges don’t charge fees when exchanging U.S. dollars into SCs;
- facilitate the sending of funds across international borders (aka international remittances) although it should be noted that such transactions come with some risk because SCs are not backed by a government entity but, instead, by a private company;
- make it easier, faster, and cheaper to exchange altcoins for SCs vs. trading coins for actual dollars in and out of a bank account. For example, you could quickly convert your Bitcoin to SCs pegged to the U.S. dollar, like Tether, and it would continue to live in the exchange you’re operating in and hold its value and you could then exchange those SCs for other coins. If you were to convert your Bitcoin directly to U.S. dollars, it could take longer to enter your bank account and would effectively take it out of the crypto exchange; and a disadvantage is that they
- don’t make for great investments and, as such, are better suited for digital transactions and converting digital assets to and from “real” money.
Meme Coins
Meme Coins are created for entertainment purposes or to grab the attention of a particular section of people (think $TRUMP and $MELANIA). Whether a particular meme coin grows to become a serious project depends on how strong their developer team and their community is. Although all cryptocurrency carries risk, meme coins are among the riskiest of cryptocurrencies because they seem to emerge from nowhere and information about them can be sparse, They soar and plummet as the public sentiment shifts this way and that capturing the public’s fancy today and are often gone tomorrow. Source
Shitcoins
According to Statista there are 9,124 cryptocurrencies currently being traded on more than 500 different exchanges but 99.99% of these coins have no intrinsic value and, as such, are called “shitcoins”.
Privacypros points out that “there are two kinds of people who want to know what a shitcoin is. The first doesn’t know exactly what it means for something to be a shitcoin. The other kind of person gets the idea of what a shitcoin is, but doesn’t know which cryptocurrencies are shitcoins and which aren’t so, for those who give a shit, here are some definitions:”
- The Urban Dictionary defines a shitcoin as “a great way to lose money” and “a cryptocurrency with no utility or unique features.” In other words, a shitcoin is a cryptocurrency that will someday be totally worthless.
- Investopia provides a detailed definition, saying that a shitcoin is “a pejorative term used to describe an altcoin that has become worthless. Shitcoin value may disappear because interest fails to materialize, because the altcoin itself was not created in good faith, or because the price is based on speculation.”
- A Quora poster calls it an “altcoin (that) is considered worthless due to the lack of useful features in the development of its blockchain. While shitcoins are considered worthless, that doesn’t necessarily stop them from going ‘to the moon’”.
