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INTRODUCTION TO CRYPTOCURRENCY

Cryptocurrency is a digital currency that uses the blockchain’s cryptographic benefits, which include transparency and security to operate and is independent of a central authority (central bank).

The first cryptocurrency, Bitcoin, was created in 2009 by an unknown person or group who uses the name, Satoshi Nakamoto.

Bitcoin and other cryptocurrencies after it utilizes the decentralized ledger system of the blockchain that has its records and transactions across a network of computers as opposed to just a central server. This technology allows for fast and secure transactions, with low transaction fees and no need for intermediaries like banks.

After the success of Bitcoin, several alternative cryptocurrencies like Ethereum, Litecoin, and Ripple have emerged, each with its own unique features and use cases. The total market capitalization of all cryptocurrencies has grown significantly over the years, from a few billion dollars in 2013 to over a trillion dollars in 2021.

TOKENS AND COINS

Over time coins and tokens have come to mean the same thing to a lot of people when in actual sense they mean two completely different things though both are products of the blockchain it would be wrong to interchangeably use this phenomenon.

A coin is a cryptocurrency that operates on its own blockchain and is used as a medium of exchange or store of value. Bitcoin, Litecoin, and Monero are examples of coins.

A token, on the other hand, is a digital asset that is issued on top of an existing blockchain platform. Tokens are often created as a way to raise funds for a specific project, and they can be used for a variety of purposes, such as access to a platform’s services or as a form of payment. Ethereum is an example of a blockchain platform that allows for the creation of tokens, and there are many different types of tokens that exist on the Ethereum blockchain.

Tokens can be further classified into two types: utility tokens and security tokens. Utility tokens are used to access a particular service or platform, while security tokens are issued as an investment, with the expectation of profit based on the performance of the underlying asset.

In summary, while both coins and tokens are digital assets, coins operate on their own blockchain, while tokens are created on top of an existing blockchain platform.

Additionally, tokens can be further classified into utility and security tokens based on their purpose.

CLASSIFICATION OF CRYPTOCURRENCY

Cryptocurrencies are classified using different qualifications the very important classifications are explained below.

Type of consensus mechanism : Cryptocurrencies can be classified based on the consensus mechanism they use to validate transactions and create new blocks. The most common types of consensus mechanisms are Proof of Work (PoW), Proof of Stake (PoS), and Delegated Proof of Stake (DPoS).

Purpose : Cryptocurrencies can also be classified based on their purpose or intended use. For example, some cryptocurrencies are designed as a medium of exchange, while others are intended to provide a specific service or functionality, such as privacy or smart contracts.

Age : Cryptocurrencies can also be classified based on their age or how long they have been in existence. Some cryptocurrencies are considered first-generation or second-generation cryptocurrencies, based on the time period in which they were created and the technology they use.

Market capitalization : Cryptocurrencies can be classified based on their market capitalization, which is the total value of all coins or tokens in circulation. Cryptocurrencies with a high market capitalization, such as Bitcoin and Ethereum, are often referred to as large-cap cryptocurrencies, while those with a lower market capitalization are often referred to as mid-cap or small-cap cryptocurrencies.

Level of decentralization : Finally, cryptocurrencies can be classified based on their level of decentralization, or the extent to which they are controlled by a single entity or group of entities. Some cryptocurrencies are highly decentralized, with no central authority or control, while others may be more centralized, with a single entity or group having a significant amount of control over the network.