What are Cryptocurrencies?

Cryptocurrencies are a digital means of exchange that use cryptography for security.

They are represented as tokens or ledger entries on a blockchain network, effectively used to meter the network’s capacity for transactions.

Confusingly, the names of cryptocurrency networks are used interchangeably with the tokens that technically speaking are the currencies. Three leading examples of cryptocurrencies are:

  • Bitcoin (network) has BTC as token.
  • Ethereum (network) has Ether as token.
  • Solana (network) has SOL as token.

The demand for any specific cryptocurrency increases the more its corresponding blockchain network is used. Greater demand for the token might well increase its price.

Digital Currencies versus Cryptocurrencies

Cryptocurrencies are types of digital currency

However, digital currencies also include stable coins, which are less volatile as they are linked to the value of an existing currency or commodity. For example, Tether is an independent stable coin which attempts a US dollar peg. Indeed, many countries’ central banks are looking into launching stable coins. Purchasing stable coins can be considered as a way to invest in cryptocurrencies oriented at minimizing the associated volatility.

While the cryptocurrency universe is evolving quickly, VanEck has identified the following broad classifications:

Designed to hold or increase purchasing power over time. For example, Bitcoin.

Cryptocurrencies Offer a Variety of Use Cases

People who don’t understand the need for cryptocurrencies usually just don’t see the use-cases. What can cryptocurrencies do besides transacting value and data on a global scale?

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