The world of cryptocurrencies has come a long way in its more than 10 years of existence. The legendary Bitcoin has been gradually complemented by more and more projects, which often operate on completely different principles. As a result, internal differentiation has become more pronounced, with the umbrella term cryptocurrency encompassing projects that are miles apart. In the following article, we will therefore organize the terms a bit.
The term cryptocurrency encompasses a digital or virtual currency that is secured by varying degrees of cryptography. Unlike traditional fiat currency, cryptocurrencies are not issued by any central authority that controls them. For most of them, transactions are recorded in a special database – the blockchain. However, many cryptocurrencies use a different technology that replaces the blockchain. Transactions are verified through a decentralised computing network, which confirms the transaction and irreversibly enters it into the system. Transactions written in this way can no longer be deleted from the network and are accessible to all members. The result is a completely transparent system that is subject to public scrutiny.
Cryptocurrencies can be obtained through mining, the rate of which is constantly decreasing (Bitcoin, Monero), or they can be issued at the time of their creation (PlatonCoin). Interested parties can then purchase them on one of the cryptocurrency exchanges. Experts predict that the advent and wider adoption of blockchain technologies may fundamentally transform not only the financial sector, but also penetrate a number of industries and social sectors.
Every token is a cryptocurrency, but not every cryptocurrency is a token. Cryptocurrencies are divided into two basic groups – coins and tokens. The main difference is that while a coin has its own blockchain network, a token does not. In fact, it uses the network of one of the coins to function. Tokens saw the light of day with the advent of the second most important cryptocurrency Ethereum and its smart contract system. These make it possible to create an application that uses a token for a specific purpose as an internal payment medium. Among the tokens is PlatonCoin, which was created on the blockchain of the Ethereum cryptocurrency.
Stablecoins are a specific subspecies of cryptocurrencies. Unlike other coins and tokens, their price is not determined by supply and demand, but is pegged to another asset, namely the US dollar or one of the precious metals (gold, silver). Exceptionally, you may also see stablecoins that derive their price from the price of another cryptocurrency. In this case, however, you must take into account that their value will fluctuate with the market. Stablecoins usually represent an intermediate step when new investors enter the exchange, as standard fiat money is exchanged for them. They are also popular among investors as a safe haven during the turbulent movements of the volatile cryptocurrency market, as they allow them to safely realize profits without having to leave the cryptocurrency trail. The most popular stablecoins include USDT, USDC or DAI.
The newest type of cryptocurrencies are the so-called CBDC, or “central bank digital currency “. As their name suggests, this is an attempt by national central banks to take the concept of cryptocurrencies and graft their own currency onto it, but under the control of the bank itself. Currently, most of these projects are in their preparation and experimentation phase, but the vast majority of central banks are talking about launching their own digital currency. CBDCs are in most cases inspired by Bitcoin and similar cryptocurrencies, so the use of the blockchain as a ledger to record individual transactions is envisaged. The main objective of central banks is not usually to replace the existing fiat currency system, but to complement it, especially for the purpose of faster settlement of cross-border payments.