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PATHWAY A) Welcome to Web3

chapter 5/5

How Many Cryptocurrencies Are There?

Read 5 min
Beginner
Crypto coins are native assets to their own blockchain. And their main purpose is securing that network.
KEY TAKEAWAYS:
— There are multiple different types of cryptocurrency, and each one has its own functionalities – but all of them store value in one way or another.

— Crypto coins are native assets to their own blockchain. And their main purpose is securing that network.

— Tokens are developed on an existing blockchain network. They enable you to interact with different platforms and applications within a blockchain ecosystem.

— Stablecoins and NFTs are subcategories of crypto tokens. 

— This is the first step on your journey into the crypto world. Let’s get to know them better.

Now you know what crypto is, it’s time to delve a bit deeper. Just how many cryptocurrencies are there – and what’s the difference between them all? Here, let us explain.

How Many Cryptos Are There?

Bitcoin may have been the very first crypto, but it’s by no means the only one. With each generation of blockchain, new types of crypto have emerged with different types of use cases. The cryptocurrency market currently features over 6000 digital currencies and is constantly expanding. 

cryptocurrencies

You can divide cryptocurrencies into four groups.  

  1. Coins
  2. Tokens
  3. NFTs
  4. Stablecoins

NFTs and stablecoins are subcategories of crypto tokens. However, we are going to discuss them separately as they hold a special place in the crypto world. 

Coins

Crypto coins are built on independent blockchain networks. The defining feature of a coin – as opposed token – is that it is a native asset to its own blockchain. A crypto coin is a unit of value, used for transactions. Its main purpose is to secure the underlying blockchain network. 

Bitcoin, Ether, and Tezos are all great examples of crypto coins. Each has its own blockchain and serves to secure that blockchain while being a unit of value. There are currently more than a thousand coins in existence, each fulfilling the vital function of securing its own blockchain.

Tokens 

A crypto token can also be a unit of value. But, it is created on an existing blockchain network. The defining feature of crypto tokens is that they do not have their own underlying blockchain.

With the help of smart contracts (we’ll come back to that), crypto-related projects create their own tokens on top of an existing blockchain network. Let’s take Ethereum as an example to understand tokens better. 

Ethereum blockchain’s native cryptocurrency is Ether. Since Ether runs on its own blockchain, it is a crypto coin. But it’s not the only currency that is on the Ethereum blockchain. The key attribute of the Ethereum blockchain is that it is programmable. In other words, developers use it for building different projects and creating various tokens. This is made possible thanks to the ERC-20 token standard.

ERC-20 Token 

ERC-20 token is a standard protocol for creating tokens on the Ethereum blockchain. It is a short form of Ethereum Request for Comments, and 20 is the proposal identifier.

Similar to how all the websites on the internet must be in compliance with HTTP, all the tokens created on Ethereum must follow the instructions of the ERC-20 standard. This is what allows different applications to communicate with each other on Ethereum. You can even create a token on the Ethereum network yourself, by following ERC-20 guidelines.

The Ethereum Network Is Evolving

As the Ethereum network evolves, its token standard has also developed. Various types of tokens such as ERC-721 and ERC-1155 exist on the Ethereum network. We’ll come back to those shortly – for now, let’s look at some of the different types of ERC-20 tokens you might encounter in the space.

DeFi Tokens

Second-generation blockchains allowed us to build applications. Each application built on a blockchain requires a token to fulfill its functionalities. As the developers started applying blockchain to the financial industry, a new ecosystem called DeFi emerged, bringing DeFi tokens along with it. 

A crypto token is not a native asset to its blockchain and it doesn’t support its underlying network. However, tokens support their own economies. We can transact tokens in exchange for goods and services on a given platform. 

‘Aave’ and ‘Sushi’ are good examples of DeFi tokens, that follow the ERC-20 standard. They function as currency for their own DeFi platforms, ‘Aave’ and ‘Sushiswap’, and enable users to engage with the utility of their platforms.  

Metaverse Tokens 

Another key use case of the ERC-20 token is the metaverse. Similar to how we have a separate economy for each country, each metaverse space has its own closed economy and its own native currency to drive it. The native currency of a metaverse space is metaverse tokens or “Meta tokens.”

The Sandbox is a great example. Its native currency SAND is the unit of exchange in the Sandbox. You would need SAND tokens to access the services and utilities of the Sandbox, and to be part of its economy.

These are just two examples of ERC 20 tokens in action, and there are thousands more.

ERC-721 Token

Now that you have a basic understanding of the ERC-20 tokens in the crypto space, let’s look at another token standard – the ERC-721 – and what it brings to the ecosystem.

NFTs 

If you’re not already familiar with the term ERC-721, let us rephrase: it’s the technical term for an NFT. NFTs were first launched on the Ethereum blockchain, and within that ecosystem, they conform to the ERC-721 token standard.

Why are NFTs important?

NFTs are the ultimate expression of digital ownership. They enable absolutely any type of data  – including art, music, gaming assets, tweets, news articles, and rights to real-world objects – to be tokenized and therefore owned digitally. This gave rise to a completely new and exciting type of economy (the internet of ownership we talked about in the first article).

NFT Use Cases

NFTs are already being used to create digital fashion, gaming assets, digital plots of land and real estate. Creators and artists utilize them to create art that exists fully on the blockchain. The best example of this is the famous “Everydays: The First 5000 Days” by NFT artist Beeple.

NFTs in Gaming

If you’ve ever been a gamer, you’ll be aware that in-game assets are a big part of the gaming ecosystem. Players would have to spend money and buy the in-game assets for a better gaming experience. However, they can never actually own the assets they bought and exchange them for real-time value. Players were never able to use the in-game assets in a different game or sell them on a marketplace for fiat money. 

This scenario is changing in a big way, thanks to NFTs. 

Most of the newly developed blockchain games use NFTs as in-game assets. Let’s say you’ve bought an NFT. You can use it inside the game, exchange it for a different asset, or sell it on a marketplace for real-time value. You actually own the NFT. NFTs have brought a huge shift in the way the gaming ecosystem operates.

NFTs in the Metaverse

NFTs are also one of the main drivers behind the Metaverse development. Users can “own” their digital environment, a piece of virtual land, or a property in the form of an NFT. This adds a new layer of virtual experience that’s simply not available in traditional gaming. 

NFTs are real game changers. They are gradually blurring the boundaries between digital and real lives by enabling us to have digital ownership of virtual assets.

Stablecoins

Finally, let’s talk about stablecoins.

Cryptocurrencies are known for their volatile nature and extreme price fluctuations. Using crypto for transferring value, as an alternative to fiat money, is impractical considering its volatility.  

This is where stablecoins come in. As their name suggests, the price of stablecoins remains the same or stable. Stablecoins are a special type of ERC-20 tokens. The main purpose is to leverage the pros of cryptocurrencies and eliminate their volatile nature. 

Stablecoins are able to hold a steady value because they are backed by other assets. For example, one of the popular stablecoins tether (USDT) is tied to the US dollar. For every USDT, an actual Dollar is kept in reserve, meaning the value of USDT is as stable as the dollar itself. Stablecoins have come to function as the lifeblood of the DeFi ecosystem because their stable nature is essential for various functions of DeFi. 

Welcome to Crypto!

So there you have it – you have now completed the first chapter in your introduction to the world of cryptocurrency!

Although it may seem like a lot of information, knowing these basic definitions will set you up to decide what you want to get from the crypto ecosystem, and how to access that via the coins and tokens you choose.

Crypto is your key to a whole universe of new possibilities – let’s talk in the next chapter about crypto management, and the one essential tool you need to manage your crypto.


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