Why are there so many types of cryptocurrency? Well, why not?
One of the first questions I had when first getting into cryptocurrency was why are there so many different types? I decided I wanted some, then I had to choose which one. I had heard of Bitcoin but quickly realized there were a plethora of options to choose from.
Exchanges offer different cryptocurrencies, but, in what I assume to be an effort to be user friendly, the exchanges assumed I already understood the nuances of the different cryptos they offer. Here is a succinct explanation (in plain language) to why there are so many to choose from.
Cryptos are easy to create
It takes almost no effort to copy (fork) an existing crypto and just change the name. This is because the technology is open source — free and available. There are nuances beyond the name that differentiate the currencies and are part of the technology. The details affect speed, value, etc. but we’ll save that for another time.
ICO’s are like startups looking for investment capital
One approach is to look at it like a stock. ICO’s or Initial Coin Offerings are similar to IPO’s or Initial Public offerings of stocks. One difference here is that crypto is easier to use like cash than stocks are. There are far fewer barriers to entry (bank account, high mandatory minimums, more advanced knowledge to trade).
Companies have stocks on the stock market and each company has a different product or service that determines the value of that stock.
Similarly, each type of crypto has it’s own features and some are tied to projects, apps or even games. In this analogy, the cryptocurrencies are the stocks and the exchanges are the stock market exchanges like the NYSE.
Stocks and cryptocurrencies both can be volatile.
Both hold value.
Both can be traded for goods, services or money.
So, why are there so many types of cryptocurrency? Well, why not?
What I’ve found is it’s easy to get bogged down in technicalities that really don’t affect how I use crypto, so I don’t let myself get drowned in tech language. I look into it occasionally but fend off the overwhelmed feeling that can come with new technology.
Check out CoinYou.co and take free courses to learn how to use crypto safely and easily.