If you are a curious observer of the crypto world, reading on various websites or information books, you may have thought that there are thousands of cryptocurrencies in the world. But is not so! Yes, they are all digital assets. And yes, they are all similar in appearance. But less than a tenth are true cryptocurrencies.
There are two basic types
- The first type of cryptocurrencies are what are considered true cryptocurrencies and are called “coins”. They include, for example, Bitcoin, Ethereum, Cardano, EOS and others. They represent the digital currency that could one day function like today’s dollars, euros or yen, but in a more transparent and efficient way. In a nutshell, these are data that can be saved on a computer’s hard disk, which follow the rules defined by specialized software. But the truly unique and innovative fact is that these data are not stored in a central repository nor managed by a single organization. On the contrary, they are automatically produced and stored on countless computers connected to the Internet, in a way that is free of tricks, accessible to anyone and, ideally, not controlled by anyone. These cryptocurrencies live on a network called blockchain, or even “public distributed ledgers”. Hundreds of them exist, many of which are supported by teams of professional developers.
- The cryptocurrencies of the second type, however, are not true cryptocurrencies. Many call them “ICO” (Initial Coin Offering) or, more commonly, “token”. They have some physical properties that make them similar to coins, but also a couple of substantial differences that we will elaborate on later. There are thousands of them and the vast majority is either a bankruptcy or a scam.
Differences between cryptocurrencies
There is no question in the world about cryptocurrencies that is actually as simple as we are told by scholars and analysts. Many variations, differences and exceptions must be taken into account. Here are the main ones:
- Centralized coin management. Some companies are distorting the nature of cryptocurrencies as decentralized resources, centralizing their management in the hands of society members. The most obvious examples are those of the Ripple Company with XRP and Facebook with Libra.
- Tokens used as coins. Most of the tokens in the world today are simply tokens and nothing else. But there are some very different ones, the so-called ICOs, which are destined to turn into coins at a predetermined future date. A known case is that of EOS, an advanced cryptocurrency whose launch in 2018 was announced a year earlier, flanked by the sale of ICOs to finance the project itself, which at the time of the launch turned into EOS currency. In a year, 4 billion dollars were raised.
- Security token. In the early days of the crypto sector, most investors mistakenly thought they could participate in the success of a new business the old way, that is, by buying ordinary shares. It has happened that many have been scammed without being able to appeal to rights or insurance. To solve this problem, the current industry is using tokens as securities, creating what could someday be ordinary digital stocks. At the moment there are only a handful of them, but they are destined to become the norm.