The blockchain acts as a building block between the three main types of cryptocurrencies. Bitcoin is the first blockchain and later many new blockchains were created after Bitcoin — which are called as altcoins. Few solid examples of altcoins are NEO, Litecoin and Cardano. Finally, the last one to be introduced is tokens/dApps which are the third main type of cryptocurrencies. Few examples of tokens include Civic (CVC), BitDegree (BDG), and WePower (WPR).
What is Bitcoin?
It is a digital currency which can be sent to other people as a form of gift, as a product or for services. It is just similar to any money that which is used in the bank accounts (USD, EUR etc.). But they are not physical and are only digital currency.
This is not the only feature which makes it different. It is also decentralized, which means it does not depend on any banks or third party to handle them. With Bitcoin, each and every transaction takes place directly between the users which is called as a peer-to-peer network. This is possible only with the blockchain. With Bitcoin was introduced blockchain technology which allows the users to send and receive the Bitcoins without the third party interference.
When the users send the Bitcoin, its transaction are verified and stored on the blockchain network which is a shared database. This information on the blockchain is encrypted where everyone can view it but only the owner of these Bitcoins can decrypt them. The owner of the Bitcoins is provided with a private key, and using this private key the owners can decrypt their Bitcoins.
What is Altcoins?
Next comes the altcoins. Currently, there are more than thousands of these altcoins in existence. Majority of these altcoins are nothing but alternate versions of Bitcoin with minor changes made to it. That is how the name altcoinsis coined. But it is important to understand that not all the altcoins are the alternative versions of Bitcoin. There are few other Altcoins which are very different to Bitcoin and also have very different goal or purpose. These altcoins which are different from Bitcoin also use different algorithms. One such example, is Factom which is an altcoin that uses Proof of Stake. In Proof of Stake, there are stakers and no miners. Stakers are people similar to Miners who verify the transactions for rewards. But rather than racing to verify the blocks before anyone does, they are selected in a specific manner one by one to take the turn. This uses very less electricity as there are no thousands of miners using their and to verify the same block and also less electricity to try. Infact, there is only one ‘staker’ per block.
What is Token?
The third type of cryptocurrency which the main part amongst them all is Token. Out of the three types of cryptocurrencies, these tokens are the most interesting ones. Compared to the other two main types of cryptocurrency, they are the completely unique ones and in fact they do not own any kind of blockchain by their own.
These tokens are used on dApps which are the decentralized applications; these apps are built on blockchains like the Ethereum and NEO. These dApps are built in order to use the smart contracts and that is why they use the tokens. Tokens have a price which can be sold for a good value and this is why few people buy them. As said earlier, people buy the tokens to sell them for a higher price later, rather than buying them to use on the dApp.
In order to make a transaction on a dApp by using the tokens, the users need to have Ether or NEO or another altcoin on which the dApp is built on so as to pay the transaction fees.
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