Introduction

The recent rise of cryptocurrencies has revolutionised the way we think about money, investments and other financial transactions. Cryptocurrencies are built on blockchain networks which eliminate the requirement of a centralised authority controlling the currency and rely on users to verify the transactions on the blockchain.

You might have also heard of some of the famous cryptocurrencies such as Bitcoin, Ethereum, Solana, USDC, etc. Although all of them come under the category of cryptocurrencies, each one is quite different from the others and has different purposes and use cases.

Let’s understand the various types of cryptocurrencies along with the ways you can buy and trade them:

Bitcoin (BTC)

Bitcoin is the first cryptocurrency built on a blockchain network. The blockchain is a public ledger that records all transactions across a network of nodes(computers). This ledger eliminates the need for a centralised authority to validate transactions while ensuring a transparent and tamper-proof validation system.

Bitcoin uses the concept of “mining” as a consensus mechanism known as Proof of Work (PoW). The miners compete to solve complex mathematical problems and whoever solves the problem first gets to add a new block to the blockchain while getting rewarded with newly minted Bitcoins.

The key features of Bitcoin include PoW, Limited supply, secure transactions, anonymity and transparency. 

Altcoins

Altcoin is the abbreviation for “alternative coins” and refers to all cryptocurrencies other than Bitcoin. After the advent of Bitcoin, many other cryptocurrencies emerged as alternatives to Bitcoin to improve upon the limitations, such as slow transaction processing rate, high transaction fees, high energy consumption, etc.

These altcoins offer a wide range of functionalities from improved scalability to enhanced flexibility and many more use cases of the underlying blockchain technology.

Let’s understand some of the popular altcoins and their applications:

Ethereum (ETH)

While Bitoin’s main use case comes as a cryptocurrency, Ethereum goes beyond being just a digital currency. Ethereum was a crowdfunded platform that went live in 2015. Ethereum revolutionised how apps are built on the internet and became the largest platform for creating smart contracts and decentralised applications without downtime, fraud or interference from a third party.

The consensus mechanism for Ethereum is Proof of Stake (PoS). The native coin for Ethereum is ETH. The validators need to stake their ETH holdings to verify transactions and execute smart contracts. The validators are compensated in the form of “gas fees” for the computation effort required in various processes including transactions, smart contracts and dApp functions. The gas fees fluctuate depending on the network demand.

Unlike Bitcoin, Ethereum was first designed without a fixed supply cap. However, they later implemented a mechanism to burn a portion of the transaction fees potentially making ETH deflationary over time. 

Solana (SOL)

Founded in 2017, Solana is another blockchain platform designed to build and scale decentralised applications and cryptocurrencies. Solana solves scalability issues faced by networks like Bitcoin and Ethereum without sacrificing security and decentralisation.
Proof of history (PoH) is the consensus mechanism on Solana which allows a much higher throughput (no of transactions per unit time) and low transaction costs making it a lucrative choice for web3 builders.
Solana has an inflationary token model which means new SOL tokens are minted over time. The network started with an initial inflation rate of 8% which decreases by 15% each year. The network aims to reduce the inflation rate to 1.5% per annum in the long term.

Even though Solana has an inflationary model, there are certain deflationary mechanisms including burning a part of transaction fees and staking rewards. The burned tokens are removed from the supply forever reducing the available supply of the coin.

Cardano (ADA)

Similar to Ethereum and Solana, Cardano also aims to provide an ecosystem for developing decentralised apps and smart contracts. Cardano differentiates itself with its multi-layer architecture and a different consensus mechanism known as Ouroboros Proof of Stake. 

ADA is the cryptocurrency of the Cardano network and it has a maximum fixed supply of 45 billion tokens making it deflationary. ADA plays a central role in the network’s operation, transactions, smart contract execution and governance participation. 

Tokens

A Crypto Token is another form of cryptocurrency or digital asset without its own blockchain. While cryptocurrencies such as Bitcoin and Ethereum have their own blockchain networks, tokens rely on standards provided by existing blockchain networks such as Ethereum, Polygon, Solana, etc. Based on the utility, there can be various types of tokens including currency tokens, utility tokens, governance tokens, NFTs, etc.

Chainlink, Filecoin, Theta, etc are some of the popular tokens. NFTs or Non-fungible tokens are another type of token. Let’s understand that here:

NFTs

Non-fungible tokens (NFTs) are unique digital assets that can be in the form of a specific item or any piece of content. Each NFT represents ownership or proof of authenticity over a particular item.

Unlike Bitcoin, Ethereum and other cryptocurrencies, which are fungible and can be exchanged on a one-to-one basis, each NFT has a distinct value and cannot be exchanged equivalently with another NFT. There are many popular examples of NFT projects such as CryptoPunks, Bored Ape Yacht Club, Meebits etc.

Stablecoins

Since cryptocurrencies are a new form of money, they come with a lot of price volatility. This problem is solved with the help of stablecoins which are pegged to more stable assets such as USD, EUR, gold or even other cryptocurrencies. The primary purpose of stablecoins is to combine the best aspects of fiat currencies with the benefits of cryptocurrencies. 

USDC

USDC is a type of cryptocurrency known as stablecoin. It was created through a collaboration between Circle, a peer-to-peer payments technology company, and Coinbase, a major cryptocurrency exchange. USDC is pegged to and backed by the United States dollar (USD) or equivalent assets held in reserve. USDC aims to create a digital currency that combines the stability and reliability of the US dollar with the advantages of a currency on the blockchain.

Unlike other cryptocurrencies, USDC operates on several platforms including Ethereum, Solana, Algorand, etc which allows interoperability and ease of transaction between the various chains.

USDC is used for various purposes such as facilitating seamless transactions on the blockchain, serving as a stable digital dollar in DeFi applications, and enabling quick and secure cross-border transactions without fees and delays associated with traditional banking. 

Memecoins

As the name suggests, memecoins are a category of cryptocurrencies that originate from viral memes, jokes and popular cultural references. Unlike Bitcoin or altcoins, memecoins don’t offer any technological innovation or use cases in mind. Memecoins primarily gain popularity through social media, viral trends and community support.

Similar to other cryptocurrencies, memecoins operate on blockchain technology, allowing for decentralised, peer-to-peer transactions. They can be traded or used in transactions in some cases. Memecoins are generally highly volatile and can be significantly influenced by a famous figure or just a social media trend. 

Community engagement, influencer endorsement and viral trends play a crucial role in the success of a memecoin.

Dogecoin (DOGE)

Created in 2013, Doge was the first memecoin based on the popular Doge meme featuring a Shiba Inu dog. Despite being a memecoin, Doge gained even more popularity when it was backed by Elon Musk and also used for payment of Tesla merchandise. 

Shiba Inu (SHIB)

Created in 2020 by an anonymous person or group called “Ryoshi”, Shiba Inu is a meme token that brands itself as the “Dogecoin Killer”. However, it’s more of a friendly rival of Doge rather than an outright competitor. 

PepeCoin (PEPE)

Pepecoin is a cryptocurrency inspired by a meme known as “Pepe the Frog”. The coin was launched as a way to capitalise on the meme culture targeting communities that created and shared memes of Pepe the Frog.

How to buy a Cryptocurrency

Here’s a step-by-step process to buy cryptocurrencies:

Choose a cryptocurrency exchange

You can use a cryptocurrency exchange platform to buy, sell and trade cryptocurrencies. These exchanges can be centralised or decentralised. 

Centralised exchanges are managed by a centralised authority whereas decentralised exchanges rely on peer-to-peer trading without intermediaries. You need to create an account on your chosen exchange. This process requires you to provide your email address and verify your identity.

Examples of centralised changes include Coinbase, Binance, and Kraken whereas examples of decentralised exchanges include Uniswap, Pancakeswap, Balancer, etc.

Depositing Funds

Most exchanges support bank transfers, credit/debit cards or other popular methods that may be available in your country. Each method has its own fees and processing time.

Storing cryptocurrency

To store these cryptocurrencies, you need a wallet which can be an exchange wallet, software wallet or hardware wallet.

Exchange wallets are automatically created when you create an account on an Exchange platform. Whereas, software wallets allow you to store your crypto separately while also keeping it accessible for transactions. Hardware wallets are physical wallets that can be used to store large amounts of cryptocurrency offline.

Conclusion

Cryptocurrencies offer an innovative and lucrative solution to the various issues posed by fiat currencies. Many established cryptocurrencies such as Bitcoin, Ethereum and Solana offer solutions to real-world problems while also giving you a chance to own a part of them.

However, the web3 space is in its infancy which makes it highly volatile and often a breeding ground for scams. You need to take precautions and learn the fundamentals of any cryptocurrency before investing in it. Starting small while spending time learning can help you take advantage of this transformative technology while also making valuable gains with the help of cryptocurrencies.