It’s been a fabulous week for most cryptocurrencies. Bitcoin has hit $60,000 again, while Ether (cryptocurrency of Ethereum) has found a new all-time high of over $2,000. DOT (cryptocurrency of Polkadot) has also found a new all-time high of over $45.
You’re spurred into action. You want to research on the different cryptocurrencies while waiting for a pullback. And you realize that there are more than 4,500 cryptocurrencies!
You’re also looking for some diversification within your cryptocurrency portfolio to capture the opportunities the nascent blockchain technology brings.
How can you achieve the results you’d like to have?
Through diversification. This means that you must know the different categories of cryptocurrencies so that you can spread your investment capital across them. Does this sound similar to stock trading?
Before you read further, I’d strong advise you to open a cryptocurrency exchange account and decide on the type of wallet you’d prefer to store your cryptocurrencies in.
Let’s explore the 5 major categories of cryptocurrencies which you can invest in.
You’ll probably have heard of this. Payment cryptocurrencies have been receiving the media limelight lately after several huge companies announced that they have been buying such cryptocurrencies lately.
Furthermore, several large companies have begun accepting payment in such cryptocurrencies.
Payment cryptocurrencies aim to be a store of value and to be used in transactions, just like fiat money.
Payment cryptocurrencies are easy to transact, and the larger payment cryptocurrencies like Bitcoin and Litecoin are gaining acceptance by merchants. All you need is a cryptocurrency wallet and Internet connectivity.
Examples of payment cryptocurrencies: Bitcoin, Dash, Dogecoin, Litecoin, Stella Lumens (cryptocurrency of Stella).
Most blockchains are pretty transparent. Transactions on transparent blockchains can be traced and tracked, hence the birth of privacy blockchains with privacy cryptocurrencies.
Privacy cryptocurrencies are heavily focused on anonymity and transaction security.
In a situation which you don’t want your IP address to be revealed, like an anonymous donation to your favorite charity organization, such blockchains and cryptocurrencies come in handy.
Examples of privacy cryptocurrencies: Firo, NU (cryptocurrency of NuCypher), XMR (cryptocurrency of Monero), Zcash.
What’s the 1st platform blockchain that comes to your mind?
Ethereum. Did you get that?
Blockchains which support decentralized application protocol (dApps) and/or smart contracts are platform blockchains. Such a blockchain allows other blockchains to be built upon it. The cryptocurrencies issued by platform blockchains are known as platform cryptocurrencies.
The more dApps and uses are built on a platform blockchain, the more valuable its cryptocurrency should be.
Think about platform blockchains and their cryptocurrencies as shopping websites such as Amazon. The more sellers and items listed, the better. The number of viewers will increase over time. This is also known as network effect.
Examples of platform cryptocurrencies: ADA (cryptocurrency of Cardano), DOT, (cryptocurrency of Polkadot), EGLD (cryptocurrency of Elrond), Ether (cryptocurrency of Ethereum).
The blockchains of such cryptocurrencies provide financial services which include lending, investments, insurance, asset management, and more.
Some of the cryptocurrencies in this sphere aim to serve the unbanked and underbanked. As banking and transport infrastructure can be lacking in many developing nations, there’s a void these blockchains and cryptocurrencies can fill.
Examples of finance cryptocurrencies: Aave, POLY (cryptocurrency of Polymath), YFI (cryptocurrency of yearn.finance),
Life wouldn’t be complete without entertainment. Entertainment can come in the form of music, social media, gaming, gambling, and more.
The gaming industry is predicted to grow from a value of $167 billion in 2020 to $291 billion in 2026. That’s a 74% increase in 6 years! Hence, this is one category of cryptocurrency you’ll want to pay attention to.
As the world’s population continues to grow, demand for entertainment will grow too.
Examples of entertainment cryptocurrencies: Enjin Coin, SAND (cryptocurrency of The Sandbox), REVV
A stablecoin is a cryptocurrency that’s collateralized. The collateral could be fiat money (such as USD), commodities (such as gold), other cryptocurrencies, or even a basket of fiat money and/or commodities and/or cryptocurrencies.
As stablecoins are collateralized, prices tend to be more stable (unless there’s cryptocurrency as a collateral).
When you purchase cryptocurrencies, the easiest way to do so is to use stablecoins. Many cryptocurrency exchanges will swap your deposits to a USD backed stablecoin (eg. Binance USD if you use Binance International cryptocurrency exchange).
Do you have a cryptocurrency exchange account? I’ve compared 6 big and trust-worthy cryptocurrency exchanges. You’ll learn about their trading fees and whether you can earn interest for keeping your cryptocurrency with them. Find out by clicking here.
Examples of stablecoin cryptocurrencies: Binance USD, USD Coin, DAI
3 Lessons You’ve Learnt Today
#1 There are many categories of cryptocurrencies
#2 Diversify your cryptocurrency investment by buying cryptocurrencies belonging to different categories
#3 Each category of cryptocurrencies has its unique benefits and utility
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