The use of cryptocurrencies, also called tokens or coins in some cases, are not just changing the dynamics of trade and commerce worldwide, but they’re also changing lives by turning people into millionaires overnight from investments they initially made at a few thousand dollars and in many global cases, a few hundreds of dollars. Its influence, sporadic growth, and increased global acceptance is driving up their value worldwide with the likes of bitcoin starting from less than a dollar per unit to exceeding $60,000 per unit in 2021, Ethereum starting from around $0.4 per unit to exceeding $4000 per unit in 2021 and hundreds of cryptocurrencies having the same type of rapid growth and counting.
The implication of these sporadic growths is a life-changing event for thousands of people worldwide who bought them early and held on to them for a very long time. Their sustained rise over a long period of time shows that it is never too early nor too late to start trading cryptocurrencies and that if an individual missed out on them at the early stages of their existence, you can still get in today on most of the high valued coins and especially on the bulk of the low valued altcoins.
But how do you determine which type of cryptocurrencies to buy to improve your chances of success?
To answer this question, If you’re looking to learn the various types and use cases of cryptocurrencies to help you make a more informed decision on purchasing a token, this article is a great place to start in Nigeria, Africa or anywhere around the world:
See Also: What Is A Cryptocurrency & How Does It Work? Everything You Need To Know
The Three Main Types of Cryptocurrencies:
There are over 13,000 cryptocurrencies in the world. And while their numbers are vast and growing, they are categorised into 3 main types:
Bitcoins were the first cryptocurrency to be created. It was introduced to the world in the year 2009 by an anonymous person or entity supposedly called Satoshi Nakomoto The cryptocurrency is the most successful one to date and has risen over time from a mere figure of $0.008 to an astronomical figure of over $60,000 per unit at the time of publishing this article.
Bitcoins were the first examples of how a decentralised currency that can neither be controlled nor contained by a government can break into the world and give more freedom and power to the people who own them, unlike the fiat currencies that are printed enmass by the central bank. And it runs on its own blockchain network called the Bitcoin blockchain Network.
As a yardstick for the cryptocurrency world to follow, bitcoins have set the pace, are widely accepted in many places, and have even gone on to become legal tender in countries starting with El Salvador.
See Also: What Is Bitcoin And How Does It Work? Everything you Need To Know
Altcoins are also called alternative coins and are all cryptocurrencies other than bitcoin. Following the success of bitcoin, altcoins like Ethereum, Binance Coin, Solana, and much more have been launching almost every day, with many having several or totally no use case.
The most popular altcoin is Ethereum. It launched in the year 2015 and its blockchain network, also called the Ethereum network, is a platform so many other altcoins are built on. Several other altcoins have gone on to launch their own blockchain networks, like Binance, Solana, EOS, Avalanche, and more.
Some of the most popular altcoins in the world are:
- Ethereum (ETH)
- Binance Coin (BNB)
- Solana (SOL)
- Cardano (ADA)
- XRP (XRP)
- Polkadot (DOT)
- Dogecoin (DOGE)
- Avalanche (AVAX)
- Shiba inu (SHIB)
- Litecoin (LTC)
Stablecoins were created as cryptocurrencies that do not fluctuate, unlike other cryptocurrencies that are highly volatile. They are usually pegged to the US dollar and act as a form of digital dollar for cryptocurrency traders to hold on to and use in making cryptocurrency purchases.
Because of their stable state, when the market is crashing, cryptocurrency traders can sell their currencies and convert them into stable coins which they can then use to repurchase the cryptocurrencies later at low to high prices.
The most popular stablecoins in the cryptocurrency world at the time of publishing this article are:
- Tether (USDT)
- USD Coin (USDC)
- Binance USD (BUSD)
- TerraUSD (UST)
- Dai (DAI)
- TrueUSD (TUSD)
- HUSD (HUSD)
And many others.
While the three types of cryptocurrencies above explain an overview of the various types of cryptocurrencies in the market, trading them is a completely different ball game. Before you purchase any cryptocurrency, you need to do a lot of research on its prospects, founders, quantity available, number of holders, and most especially its use case or purpose of creation.
The use case of any cryptocurrency is highly important to the potential future value, acceptance and growth of the cryptocurrency.
There are many different uses of cryptocurrencies, and depending on what it was created to be used for, their worth could either explode in value, remain dormant, or crash out completely.
See Also: How To Start Trading Cryptocurrencies In Nigeria or Africa: The Complete Guide
Primary Use Cases Of Some Cryptocurrencies
To understand several use cases and then to decide what use case may inspire you to purchase certain cryptocurrencies, here are some uses cases to explore:
1). A Blockchain Network:
Several cryptocurrencies now have a blockchain network of their own built, where users can build and launch blockchain applications that serve different purposes. Some coins that own blockchain networks today are:
- Binance Coin
And much more.
When a cryptocurrency owns its own blockchain network, the use case is immensely great as many applications can be built on its network by a wide range of individuals and organisations. The more popular their blockchain networks are used, the more valuable the cryptocurrency will be.
2). A Special Utility Token:
Many cryptocurrencies were built on another cryptocurrency’s blockchain network. Even further, some cryptocurrencies we simply regenerated from another cryptocurrency, making them a fork of that cryptocurrency.
Out of these cryptocurrencies, many of them were created for special purposes like decentractralised finance applications, money transfer, gaming, and more.
Depending on what it was created for and how much the cryptocurrency is in use with its use case, its value could jump tremendously, making these types of cryptocurrencies attractive to purchase.
3). A Purely Speculative Coin:
Many cryptocurrencies were created without any specific use case and were simply made and projected to grow strictly on a speculative basis. While speculative cryptocurrencies are not advisable to purchase as no use case means its demand may be greatly low and as such, the value may likely totally crash down than rising, some speculative cryptocurrencies have made great strides.
The biggest example of a speculative cryptocurrency that has jumped many times over is the Shiba Inu Cryptocurrency. Since its original appearance in 2020, it rose by 83,989,298.2% between the 28th of October 2020 till the 30th of November 2021. Anyone who had invested a mere $100 would have made returns as huge as 83,989,298.2% during the time period.
If you want to purchase speculative cryptocurrencies, you need to proceed with caution as thousands of them have also crashed by more than 99%.
See Also: What Is Blockchain Technology How Does It Work? Everything You Need To Know
Secondary Use Cases Of Some Cryptocurrencies
While the earlier section covered the primary use cases of cryptocurrencies, here, I’ll show you the secondary use cases of various cryptocurrencies that are already within the primary use case categories. These secondary use cases can help determine what cryptocurrency to best purchase depending on its current or future potential usage. they are:
1). Digital Money:
Cryptocurrencies primary reason for existence is to decentralise money, take its control away from the government and give it to the people. Since its primary goal is to create a truly unhindered and publicly transparent digital money system, all cryptocurrencies fall into this category, with bitcoin being at the top of the list.
2). Metaverse Coins:
The metaverse is a virtual world or immersive digital space for a vast range of activities. In simple terms, the metaverse is the internet being converted from a 2D to a 3D world.
Ever since Facebook announced the change of its parent company’s name from Facebook to Meta in 2021, Metaverse cryptocurrencies have been soaring in value. Many platforms that operate on the metaverse are video games, streaming services, fashion, social networks, and much more.
Currently, the metaverse coins that jump the fastest are video game coins, especially since video games are addictive and a lot of players are always making in-game purchases with cryptocurrencies, with the likes of Axie Infinity (AXS), Decentraland (MANA), and The Sandbox (SAND) leading the cryptocurrency pack in the world of gaming at the time of publishing this article.
While metaverse coins are one of the hottest types of tokens to buy, you should do your research before investing in any.
3). Payments & Money Transfer:
Digitizing money wasn’t just the first goal of creating cryptocurrencies. But perhaps, the second most important goal of creating cryptocurrencies was to be able to facilitate instant global money transfer at the cost of almost nothing.
For instance, in September 2018, a bitcoin wallet belonging to an anonymous owner transferred $2 billion worth of bitcoins to another wallet with a total transfer fee of just $0.78, with the transfer completed within a few minutes. But if it was going to be done via the banking system, it would take between 3 to 7 days and the bank would charge between 1-3% of the transfer value, causing the owner of the funds to lose between $20 million to $60 million in transfer fees alone, as opposed to the mere $0.78 that was paid.
While cryptocurrencies are transferrable within the blockchain network, some cryptocurrencies are further used to create money transfer applications on the network that facilitates fast money transfer. One of such cryptocurrencies is Cardano (ADA), which has been considered for use by governments to experiment with a faster and more efficient money transfer method.
4). Smart Contracts:
Smart contracts are executed by decentralized applications that are built on the blockchain network. They could be loan issuing applications, investing applications, trading applications, and much more. Essentially, they’re conditional apps that have the human element removed and automatically deliver value based on what they’re programmed to do depending on if certain conditions are accurately met by the party requesting the service and the smart contract application.
Ethereum is the biggest smart contract blockchain network in the world. But while not the only one, it has shown great potential in the ability of smart contracts to thrive in the blockchain networks and disrupt the global financial system.
By investing in cryptocurrencies that have thousands of smart contract apps built on them, you could also be positioning your investment for long-term growth.
Some other secondary use cases of cryptocurrencies are
- Internet of Things
- Digitised Metals
- Intellectual Property
And much more.
See Also How To Lend Or Borrow Money Using Cryptocurrency As Collateral: Everything about Crypto Loans
To Sum It Up
Investing in cryptocurrencies can change anyone’s life if they wait long enough before they sell, but determining the right type of cryptocurrencies to buy can be a challenge to a lot of people. If you’re having a hard time deciding which cryptocurrencies to buy, making your selection based on the use case of the coin can help you determine how demanded the token may be in the future and better project how high you believe the cryptocurrency’s value will rise.
While making an investment decision in cryptocurrencies based on the use case is one part of determining what cryptocurrency to buy, it’s not the only factor to consider, but a powerful factor, nonetheless.
If you’re looking to learn the various types and use cases of cryptocurrencies to help you make a more informed decision on purchasing a token, this article is a great place to start.
What are your thoughts on these various types and use cases of cryptocurrencies in Nigeria, Africa or anywhere around the world? Let me know by leaving a comment below.