For example, bitcoin and altcoins have a similar basic framework. Altcoins also work as peer-to-peer (P2P) systems and share code, much like bitcoin.
Of course, there are also stark differences between bitcoin and altcoins. One of them is the consensus mechanism that these altcoins use to validate transactions or produce blocks. While bitcoin uses the proof-of-work (PoW) consensus mechanism, altcoins typically use proof-of-stake (PoS). There are different categories of altcoins, which can best be defined by their consensus mechanisms and unique functionalities.
Cryptocurrency Staking: How to Choose the Best Coins to Stake for Passive Income
These are the most common types of altcoins:
Based on Mining
Mining-based altcoins use the proof-of-work method, better known as PoW, which allows systems to generate new coins through mining. Mining involves solving complex problems to create blocks. Monero (XMR), Litecoin (LTC), and ZCash (ZEC) are examples of mining-based altcoins.
Stablecoins
Stablecoins aim to reduce the volatility that has marked the trading and use of cryptocurrencies since the beginning. The value of stablecoins is therefore linked to the value of a basket of goods, such as precious metals, fiat currencies, or other cryptocurrencies. The basket serves as a reserve in case the cryptocurrency has problems. Dai (DAI), USD Coin (USDC), and Tether (USDT) are examples of stablecoins.
Security Tokens or Security Tokens
Living up to its English name, a security token is similar to traditional securities traded on stock markets. They resemble traditional stocks and represent equity, either in the form of property or dividends. Security tokens attract investors due to the high probability that their price will appreciate rapidly.
Memecoins
Memecoins are so named because they represent a dumb version of well-known cryptos. They are often promoted by celebrities and influencers in the cryptocurrency space. The popular memecoins Dogecoin (DOGE) and Shiba Inu (SHIB), for example, often have their prices pushed by Elon Musk, the CEO of Tesla and a well-known crypto enthusiast.
Utility Tokens or Utility Tokens
Utility tokens are used to provide services such as rewards, network fees, and purchases within a given network. Utility tokens do not offer capital, unlike security tokens. Filecoin (FIL), for example, is a utility token used to purchase storage on a decentralized storage network.
Loading
Comments