At the time of writing this article, we can count up to 5,140 cryptocurrencies being traded on the market regarding coinmarketcap. This considerable number seems ridiculous, but the website lists any kind of Cryptocurrency ever traded on an exchange. This list includes dead coins as well as scam coins, etc. Every bear market has been seeing its lot of coins dying and not being exchanged anymore, delivering no value, and devaluing the project to 0.
Anyway, in our journey to understanding Blockchain and cryptocurrencies, we want to categorize coins and their utility. There is an infinite way to categorize coins. The most common one is to distinguish them by their market cap (valuation on the market), but we can also differentiate them by their utility, the objectives they are trying to achieve, and even the protocols their Blockchain is using.
First of all, the market cap is an essential element when it comes to categorizing different altcoins. We first notice, on coinmarketcap, that the first Cryptocurrency ranked by its market cap is Bitcoin. The first 20 altcoins are big market cap coins. A High Marketcap coin has less volatility and is considered as a giant in the industry. It is a less risky investment for the long term.
From the 20th rank to the 200th rank, or above the $10M market cap, we can consider an altcoin as a mid-market cap coin. Most of those coins can be found on major exchanges such as Binance and Huobi. These are the favorite coins of day traders because they are where reside the best volatility/risk ratio.
The other cryptocurrencies are considered to be low market cap coins. Indeed, their valuation is quite small, and the project does not seem to be validated by the people. However, when doing researches deeply on altcoins with a low market cap, you can find pure gems with strong fundamentals that can give your high returns.
Consensus protocols are one of the most critical and revolutionary aspects of blockchain technology.
These major protocols create a proven system of agreement between different devices across a distributed network while preventing exploitation of the system. Here we will explore how these systems work and the differences between the various protocols.
Blockchain consensus protocols are keeping all the nodes synchronized while providing an answer to the question: how do we ensure that we all agree on what the truth is?
Anyone can submit information on a blockchain, so a review and confirmation are crucial, in the form of a consensus.
The term “consensus” means that the nodes in the network agree on the same state of a chain of blocks, making it a sort of self-auditing ecosystem. It is also fulfilling two essential functions, update the Blockchain with the right blocks, and avoid one single entity to control or shut down the Blockchain.
Proof of Work
The Proof of Work (PoW) is a consensus protocol introduced by Bitcoin and widely used by many other crypto-currencies.
This process is known as mining and, as such, the nodes in the network are known as “miners”. Proof of work” takes the form of an answer to a mathematical problem, which requires considerable work, but is easily verified once the answer has been obtained.
Proof of Stake
The Proof of Stake (PoS) is one of the most commonly used consensus protocols in blockchain technology.
The system was first proposed in 2011, and the first crypto-currency to implement it was Peercoin in 2012. The main advantages of the Proof of Stake are energy efficiency and security.
The PoS system determines the creator of the next block randomly, considering the amount of Cryptocurrency he holds. Randomness in a PoS system prevents centralization. Otherwise, the wealthiest individual would always create the next block and therefore control the Blockchain.
Delegated Proof of Stake
The Delegated Proof of Stake (also known as DPoS) is a consensus algorithm that maintains final agreement on truth across the network, validating transactions and acting as a form of digital democracy for the Blockchain.
The Delegated Proof of Stake uses real-time voting combined with a reputation social system to achieve consensus. It can be considered the least centralized consensual protocols of all, as it is the most inclusive. Each token holder can exert some influence on what happens on the network.
The token holders elect active delegates. The token holder’s voting power, also known as voting weight, is determined by the number of basic tokens the account holds.
It is also possible to break down the cryptocurrency market into several use cases. We can count more than ten significant utilities.
- Exchange Currency
- Gaming & Gambling
- Social Network
- Decentralized Data Storage
- Stable Coins
The cryptocurrencies which most essential features are to be a currency, and so a medium of exchange, are the purest definition of what should be cryptocurrencies. We can find in this category: Bitcoin, Ripple, Monero, Litecoin, Bitcoin Cash, Dash, and more.
The second category of cryptocurrencies is the Platform Coins. The Blockchain where those coins are running have smart contracts functionalities and allows Decentralized Applications, dApps to be built. We can find in this category: Ethereum, EOS, Cardano, VeChain, Neo and more.
The Bitcoin blockchain has been created to be pseudonymous and not anonymous. Bitcoin transactions can actually be linked to a particular identity. If any financial authority asks the identity behind your account, they will be able to track back all your holdings, even if this process is long and not worthy, we are living in a world in this scenario can happen. Thus, some projects were born to give you full anonymity on their network. This third category of cryptocurrencies is the Privacy coins. They aim to prevent this traceability by changing your addresses and obfuscate your I.P. We can find in this category: Monero, Dash, ZCash, Komodo, and more.
Cryptocurrency Exchanges, centralized or decentralized, have been the most profitable business during the Bitcoin Bull Market. Thus, most of them are using a unique cryptocurrency for their own exchange platform, where people can use them to pay their trading fees. We can find in this category: Binance Coin, Kucoin Shares, Huobi Token, OKex Token, and more.
Blockchain-based games seem to be an interesting combination. They allow players to earn tradeable assets, monetize themselves, having transparent aspects – such as provability fair – while being decentralized. The top coins in the gaming industry are: STORM Token, FunFair, Electroneum, and WAX.
The next category is Social Network Coins. Today, most of the social media are entirely centralized, which makes our information, security, and privacy compromised. The goal of decentralized social networks is to create a safe environment where each user is managing its own privacy. We can find in this category: Reddcoin, Steem, Mithril, and KIN.
We could not talk about Social Network main issues without talking about Decentralized Data Storage Coins. As per the centralized Social Network Giants, crucial information can easily be compromised if stored in one place. An open-source, decentralized storage data network makes losses of data almost impossible. If many nodes contain copies of the same file, it reduces the single-point-of-failure scenario. Many coins are focused on Data Storage such as: Byteball, SiaCoin, Maidsafecoin, Storj, and more.
The last category is about Stable Coins, and we invite you to learn more about it in the next chapter because this point is crucial for you to understand.