Bitcoin, the world’s first cryptocurrency, is where most new investors get started. The coin has been around since 2009 and has gone from zero to nearly $70K in just over a decade.
And since bitcoin launched, countless other cryptocurrencies have launched, hoping to gain a similar amount of traction. While most fail, there are hundreds of other cryptocurrencies poised for growth thanks to unique use cases and revolutionary technology.
But what are these different types of cryptocurrency opportunities? Keep reading below to learn all about crypto for beginners, to help you find the next coin to invest in.
Store of Value
When it comes to crypto investments, most people consider bitcoin and other similar coins. These function mainly as a store of value.
That is, the coin itself can’t accomplish much. It doesn’t offer a ton of utility. But it’s valuable because it has a limited supply and growing demand, which ultimately drives the price up over time.
Bitcoin is the original store of value coin. Its supply is limited to 21 million (not all of which are in circulation yet). And the demand continues to grow as new investors usually choose bitcoin as one of their first crypto investments.
Many people compare bitcoin with gold. Gold is a precious metal with a limited supply on earth. It’s hard to find, making it quite rare. But demand for gold is high because it’s used extensively in manufacturing and jewelry.
Gold appreciates at value and price, albeit slowly. It’s often used as an inflation hedge, especially when the stock market is down.
Bitcoin is the newer, digital gold that accomplishes many of the same things.
One of the benefits of investing in bitcoin is that you can buy it nearly anywhere since it’s so popular. You can even buy it with cash if you visit a bitcoin ATM. Click here to find Bitcoin ATM locations near me.
Payment Focused Cryptocurrencies
One of the reasons crypto launched in the first place was to offer a new way to send money and complete financial transactions.
Using fiat currency, like US dollars, requires the use of banks and payment processors like Visa. There are a lot of middlemen that take fees. And they always retain the power of blocking transactions whenever they feel it is necessary.
Ultimately, they are in control of money, not the people. But crypto solves this problem through decentralization and peer-to-peer payments.
There are certain cryptocurrencies designed to be extremely fast and cheap to send from one user to another. Whether that person lives across the street or across the globe, you can send these cryptocurrencies in seconds, for a paltry fee.
Try sending US dollars to someone in Thailand and see how long it takes and how expensive the transfer is. Payment-focused cryptocurrencies like Bitcoin Cash, LiteCoin, Ripple, and Stellar solve this problem by making it easy to move money anywhere in the world fast and cheap.
Building Blocks
Some cryptocurrencies, and their blockchains, act as an ecosystem as opposed to an individual cryptocurrency. The blockchain was developed in a way that allows other developers to leverage the network and build on top of it.
You can think of it as a video game console. One set of developers built the underlying technology, such as the Xbox or Playstation. This allows many other developers to focus on creating individual games that leverage the technology of the gaming console.
Ethereum is the most popular blockchain for other developers to build on. Countless tokens, Defi apps, and marketplaces exist on the Ethereum network. Ethereum also boasts the majority of the NFT market.
Other blockchains that act as a foundation for other developers include Solana, Avalanche, Polygon, and Polkadot.
Keep these cryptocurrencies in mind when developing your investing strategy. Because they support so many applications, their value is likely to be the greatest among cryptocurrencies.
Tokens
When you start investing in cryptocurrency, you’ll likely make the mistake of using the terms “coin” and “token” interchangeably. But they are actually quite different.
Cryptocurrency “coins” are those that have their own blockchain. This includes many of the most popular cryptocurrencies like bitcoin, Ethereum, Cardano, Avalanche, and so forth.
Each is a separate, unique blockchain with a native crypto coin.
So what are tokens? They are cryptocurrencies built on top of existing blockchains. They leverage the technology built by other developers, which saves time and money.
Many crypto tokens live on Ethereum, which was created for other developers to leverage. These tokens include Maker, Basic Attention Token, AAVE, Decentraland, and many more.
Fees for using these tokens mimic the fees for using the underlying cryptocurrency. But these tokens also benefit from the advanced security measures created by the initial blockchain.
Stable Coins
Stables coins will likely be one of your biggest crypto investments. These tend to be less risky than traditional cryptocurrencies. Why?
Because their value is tied to the value of existing assets. Normally, this is a fiat currency like the US dollar.
Cryptocurrencies that are pegged to the US dollar include Tether (USDT), USD Coin (USDC), and Binance USD (BUSD).
Some stable coins are pegged to the value of gold, the value of Euros, and even the value of other cryptocurrencies.
Generally speaking, one Tether equals one USD, though minor fluctuations can occur (to which active traders will quickly correct).
The goal of stable coins is to remain stable in value. To do this, this means that behind the cryptocurrency, there is an asset somewhere in the bank.
For US dollar-backed coins, there should be one US dollar in the bank for every USDC or USDT in circulation. However, there has been plenty of controversy around whether or not this is actually true, particularly when it comes to Tether.
Meme Coins
Cryptocurrency source code is usually open-source. That means anyone can look at the code behind a cryptocurrency. And they can duplicate it if they want to.
And countless people are doing just that. But not everyone is trying to build the next bitcoin or Ethereum.
Instead, others are just interested in memes, making people laugh, and maybe making a little bit of money in the process.
Meme coins are hugely popular, especially after the success of dog-inspired coins DogeCoin and Shiba Inu.
These cryptocurrencies, which more or less started as a joke, took off and now have a market cap worth billions of dollars. Investors who got in early on these coins and similar meme tokens have made some serious dough.
And while meme coins likely won’t die off anytime soon. Investing in them is a huge risk and purely speculative. The coins don’t exist to serve a purpose but are just hoping to go viral enough that more people buy in.
While there’s money to be made, you need to invest with money you’re willing to lose, and most meme coins go to zero pretty quickly.
Different Types of Cryptocurrency Networks
Along with different types of cryptocurrency coins, there are also different types of consensus mechanisms.
A consensus mechanism describes how transactions are confirmed on the blockchain. It’s the process of keeping the network secure, publishing transactions, and keeping the blockchain up and running at all times.
The two most popular consensus mechanisms are proof of work (PoW) and proof of stake (PoS).
Bitcoin started it all with proof of work. This encompasses the bitcoin mining process.
Bitcoin miners need to run specialized computers, which use a lot of electricity, to try to solve a mathematical equation. All miners across the globe compete to make this happen.
Whoever solves the equation is awarded the creation of the next block, and earns a big crypto reward for their effort. This process happens constantly, with new blocks being created every 10 minutes.
A less resource-intensive method of securing a blockchain is proof of stake. Miners aren’t needed, nor are high amounts of electricity. Instead, validators run nodes, which verify transactions on the blockchain.
This type of mechanism creates a chain that can operate faster, with lower fees, and provides more scalability than proof of work chains.
Keep Your Crypto Investments Safe
Whatever cryptocurrencies you decide to purchase, it’s imperative that you take steps to keep your investments safe. The best way to do this is with a hardware wallet.
Rather than leaving your crypto on an exchange, where you don’t actually own or control it, it’s a better idea to move it to a personal crypto wallet that you control.
Hardware wallets are the safest, as they eliminate the possibility of being scammed online (which is a huge problem in the crypto space). And unlike dollars stored in a bank account, there’s no one that can repay you after losing your crypto.
By spending a few bucks on a hardware wallet, you can keep your wealth safe in an age where hackers are running rampant.
Invest Wisely
Now that you understand the different types of cryptocurrency, you can start to visualize your ideal portfolio. While cryptocurrencies in each category may be valuable, some will be much more valuable in the long run than others.
Only invest money you are willing to lose because crypto is extremely volatile.
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