What Is Cryptocurrency?
Learn the key group and sub-groups that make-up the digital asset Space!
There are a number of different terms used to describe cryptos, which is causing some confusion among newbie cryptonians.
This article aims to clear any mis-understandings on the matter.
Cryptos are digital currencies that have all been inspired by Bitcoin (BTC). They are a medium of exchange in just the same way that fiat money such as GBP or USD is used for buying or selling.
However, where they differ is that digital currencies are precisely that. Unlike fiat money, they are not tangible, they simply convey the exchanging of digital information
and only a record of them on the blockchain, prove their existence. They are created on a blockchain, using cryptography that processes transactions as well as creating new coins.
Cryptos like Bitcoin are popular because they are decentralised. In other words, banks and governments do not control access to decentralised cryptocurrencies, which is In contrast to fiat money that is more easily manipulated by governments and banks.
How Blockchains Works With Cryptocurrencies
Tokens and Coins are terms that are used interchangeably to describe most cryptocurrencies. There is, however, a distinct difference between them.
Tokens are the most common of all cryptocurrencies and there is estimated to be in excess of 1500 of them currently in existence, listed on CoinMarketCap. Unlike other cryptocurrencies, a token does not have its own blockchain technology and must engage in piggybacking on a blockchain that will support it. This process is also known as having a 'layer' on the blockchain.
What this means is, that in direct contrast to bitcoin and altcoins, a token cannot function independently but is reliant on the network or a layer of another cryptocurrency's blockchain in order to function.
Tokens are therefore in a relationship of dependency on another cryptocurrency blockchain. The vast majority of these tokens will reside on one of four central blockchains: Ethtereum, Tron, Neo, Omni.
There are thousands of Bitcoin alternatives called altcoins (alts). Altcoins such as Ethereum (ETH) and Ripple (XRP), have improved upon Bitcoin's original model or have created significant differences during their currencies development to support niche use-cases.
What Is Cryptocurrency - Niches And Sub-Groups
Within crypto, there are the main sub-groups of digital assets such as altcoins (alts), tokens, coins, as outlined above. There is, however, another sub-group that refers to companies and institutions that are developing their own coins.
This sub-group is not typically referred to as cryptocurrency but as digital currencies. Examples include Facebook's coin (which was first Libra, then the name was changed to Diem and there might yet be another change), JP Morgan and others are in the pipeline. Both of these companies are in the process of developing their own unique digital currency.
What Is Cryptocurrency (CBDC's)
Yet another sub-group of digital coins refers to the governments of the world, many of whom are now in the process of developing or releasing their own unique Central Bank Digital Currencies (CBDC's). You will most probably have heard the term 'cashless society'.
CBDC's are speculated to replace cash or paper money. The actions of some of the world's most prominent central banks in moving toward (CBDC's) is confirmation that we are heading in that direction. China was first to the table with their (CBDC), which is expected to be rolled out first. Other countries that will presumably not far behind include the USA, UK, Brazil among others.
As you can see, in answer to the question - what is cryptocurrency, it is a wide and varied concept and the term digital currency or digital assets are also used interchangeably when referring to cryptos in general.
However, in the writer's opinion, it is fair to say that the term cryptocurrency should belong to Bitcoin (BTC) and all those assets that were modeled from the (BTC) code, which include altcoins, tokens coins.
Although digital currencies are assets too on the blockchain, the term should be used more in relation to those coins developed by governments and institutions. This is despite the fact that irrespective of whether we are talking about an altcoin, token, coin, Facebook coin or (CBDCs), they are all, nevertheless still digital in nature.
So, there you have it! I hope this article answered your question - what is cryptocurrency. I would suggest you read the article - 'What Is Blockchain', which will help to further cement your understanding of what crypto is.
It is widely accepted by many within the arena that cryptocurrencies are set to revolutionise our financial world as we know it. This I do believe to be the case as there is no denying that Bitcoin and cryptocurrencies have created tremendous wealth for those very early investors who had the foresight to jump in during the early days.
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