Welcome to the world of cryptocurrency! Where everything is really simple and straightforward and everybody knows everything. Well, I’m sure a lot of people in the crypto world like to believe they know everything, but unfortunately, the crypto world is definitely not simple and straightforward. But that’s okay because it’s fun to learn.
Bitcoin, Litecoin, Ethereum, OmiseGo, Bitcoin Cash, and Ripple. They are all cryptocurrencies, right? Kind of, but not really. It’s common knowledge and generally accepted that everything is called a cryptocurrency (And that most people call Ether; Ethereum and while it’s generally accepted, you should know that Ether is the cryptocurrency, not Ethereum)
Dean: “What’re your favorite cryptocurrencies?”
Sam: “Ripple and OMG.”
So, in a conversation like Dean and Sam is having, it’s perfectly normal to call Ripple and OMG a cryptocurrency, just about everybody does it. But did you know there is an actual difference between the above-mentioned cryptocurrencies?
Let’s start with the categories of Crypto. Many of the crypto community would agree that cryptocurrency is split into three main categories.
Bitcoin, altcoins, and tokens.
Let’s get into what each one of these categories is below:
Bitcoin, the first decentralized cryptocurrency. Decentralized is an important word here, as there were many cryptocurrencies that had existed before Bitcoin was born, but Bitcoin was the first one that was decentralized!
What is a cryptocurrency? A cryptocurrency is a digital or a virtual currency that uses cryptography technology to secure and encrypt its data.
What is decentralized? There was a good answer from a Quora question on the internet. The question itself was; What’s the difference between distributed and decentralized in Bitcoin-Land?
Michael Johnson responded with:
“Decentralized means that not one single entity has control over all the processing.”
I think this is a great and simple explanation of the word decentralized!
Basically, Bitcoin is a cryptocurrency that not one single entity has control over. And that’s what people love about it. Let’s move onto the next category.
The word: altcoins, is simply a shorter version of the word; alternative coin. And it literally means as it’s named. An altcoin is any cryptocurrency that’s not Bitcoin. This means that Litecoin, Ether, and everything after Bitcoin is technically considered to be an altcoin. Though keep in mind, that while the majority of these altcoins are mostly ‘copies’ of Bitcoin with slight changes to places here and there, that there are projects that use entirely different algorithms and actually try to be different and innovative. (Not every altcoin is a sh*tcoin!)
The third type of cryptocurrency are the tokens. Tokens are in a way, more unique than the other types in the family as they do not have their own blockchain and are instead used on dApps (also known as decentralized applications). For example, a dApp would be an application that’s built on a blockchain that allows smart contracts, such as Ethereum’s blockchain.
The simplest way I can think of explaining tokens is, imagine you’re playing a video game and in that video game you use gold as a currency to purchase items for your character. The video game is the dApp, and that gold is the token. The video game belongs to a company and that company would be the blockchain.
Because when transacting with tokens, whether you’re buying or selling the token. The dApp that the token is on, does not have its own blockchain. So, if the dApp is on the Ethereum blockchain, then you would need to own some ETH in order to move the specific tokens around.
As you can see, there is indeed different types of crypto even if everything is generally referred to just as Cryptocurrency and I hope that this article helps to make things even just a tiny bit clearer! In the next article, we’ll visit the different types of Blockchains that are in the cryptospace.
Cover illustration artist RAINBOWedROSES, DeviantArt