Different Crypto Currencies And How They Work

Bitcoin alone is not a trendsetter, rather the wave of cryptocurrency also has strongly established a decentralized network for conducting peer-to-peer transactions. Cryptocurrency is the digital form of money that only runs on a decentralized monetary system and is not regulated by a centralized authority. Cryptocurrency transactions are also not raised by any formal institution in finances.

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What is cryptocurrency?

Cryptocurrency refers to an internet-based exchange medium that uses all the cryptographic features to conduct financial transactions safely. Cryptography also leverages blockchain technology in order to gain transparency and decentralization with its functions. Cryptocurrency follows a ledger in which the transactions are made public but with limited visibility. The ledger only focuses on playing transparent and eradicates the risk associated with the spending.

Cryptocurrencies are also known as virtual currencies which are developed by some private groups or individuals. Most of the cryptocurrencies do not represent the government bodies and they are considered other than alternate currencies. Its safety measures only use cryptographic protocols for codebases of extremely complex systems which have sensitive data transfer encryption in order to secure the exchange units.

Considerable forms of cryptocurrency

With the advent of technology and user requirements, cryptocurrency has changed to a greater extent. Present-day cryptocurrency is dependent on the versions of blockchain technology which also powers Bitcoin. Let us go through the major types of cryptocurrency along with their utility which is also designed to work like Fiat currencies.

  1. PROOF OF WORK (PoW)

PoW is the form of cryptocurrency that entirely depends on blockchain technology and the concept of proof of work is to proceed with the transactions. In order to add transactions in a distributed ledger system, the nodes efficiently resolve the complexity of cryptographic patterns representing the data that has to be added. PoW also refers to a secure or self-balancing form that keeps the records extremely protected.

Pros- In PoW, the proof is the follow-up procedure for verifying the remaining network associated with the transaction. Through this process, the ledger is kept valid and agreed upon by the involved parties.

Cons- Its significant downside is the sheer computer power which it requires to function.

Cryptocurrency relying on Pos- Significant cryptocurrency relies on proof of work including Bitcoin and Ethereum. It secures the market capitalization of $ 150 billion.

  1. PROOF OF STAKE (PoS)

One of the most problematic concerns with proof of work cryptocurrencies is their lack of scalability. Hence in order to superimpose the problem, an efficient model was developed which can allow the chunks of nodes to validate the transaction.

The security of the transactions is validated differently in this cryptocurrency and every note is not required to do the same. The participating nodes can use their own form of cryptocurrency in order to proceed with a transaction validation group. The interesting thing about PoS is the incentive system which performs actively and keeps things protected.

Pros- It has dynamic speed which can easily split the participants into smaller groups in order to work on transactions.

Cons- It can be concluded that PoS is less secure than PoW cryptocurrency In theoretical terms. Over time they are also becoming less decentralized.

Cryptocurrency relying on PoS- Large numbers of cryptocurrencies are dependent on PoS blockchain systems including Eos, Tron, Dash, and so on. However, they are smaller as compared to PoW instances.

  1. TOKENS

above cryptocurrencies are different because of the technology powering them, but they are not limited to it. Token in the same segment is distinct from cryptocurrency and they do not serve the general purpose of cryptocurrency.

Tokens usually represent the value of assets or cash and are usually there only recognized at the places that issued them in the first place. This cryptocurrency is developed on Ethereum blockchain technology.

pros- As tokens can represent the value of assets or cash, they are suitable for one-time applications guilt on existing blockchain units serving liquidity. They can also be put to use in real estate or commodity markets.

Cons- They are not reliable when used for exchange medium or to convert directly to Fiat currency.

Cryptocurrency relying on tokens- The cryptocurrency under the segment includes basic attention tokens (BAT) and Tether. Former is used in the form of the payment system in the recently released browser and later is used solely to value the amount under all time frames.

  1. Stablecoin

This cryptocurrency is developed to provide table value storage and it does not entertain fluctuation much. They also represent a balance between general cryptocurrencies and tokens and it is built on blockchain but it is quite extended for Fiat currency as well.

Pros- Stablecoin is used by the investors to tokenize the Fiat currency. It also effectively checks over the holdings in order to avoid loss.

Cons- The only setback of this currency is that the holder must be dependent on the platforms that are working to keep their cash reserves stable in order to guarantee the value.

Cryptocurrency relying on stablecoins- The well-known cryptocurrencies here are Paxos, TrueUSD, and Gemini.

Conclusion

Many cryptocurrencies have disrupted the industry out of which Bitcoin is the most popular. It is certain that cryptocurrency sometimes faces criticism because of a number of reasons including their illegal conduct or volatility. But in order to count maximum profits without indulging much with regulating bodies then cryptocurrency is the best option. Cryptocurrencies can also proceed with the transaction within no time assuring their security.

 

 

Lee Douglas
Lee Douglas
I have over 10 years of experience in the cryptocurrency industry and my work has been featured in major publications such as Bitcoin Magazine and CoinDesk. I’m also the author of two best-selling books on cryptocurrencies, "The Art of Bitcoin" and "Cryptoassets: The Innovative Investor's Guide to Bitcoin and Beyond". In addition to my writing, I’m an active investor and advisor in the space and a sought-after speaker at major industry events.

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