What the Hell is Crypto? A Foundation to Get Started

Newcomers are often overwhelmed by the thousands of cryptocurrencies that exist. The different missions, technical jargon, and lengthy whitepapers can prevent anyone from starting their research. But with the proper educational resources available, entering the space should be easier.

In this article, I’ll break down the three primary classes of cryptocurrencies and why they exist. By the end, you will be able to visualize the industry at a macro level and understand the context of each project you research.

Currencies

The first and largest use-case is that of currency, hence the term cryptocurrency. Examples of the most popular projects tackling the currency use-case are:

1. Bitcoin

2. Litecoin

3. Dogecoin

4. Bitcoin Cash and so many more

These projects have one mission: to offer a secure, low-cost, high-throughput system for sending value in a peer-to-peer fashion – striving to be digital cash. Emulating physical cash to the digital world comes with several complications that are at first unapparent. Much like cash, these cryptocurrencies must be:

1. Private: just like a cash transaction, it should be able to take place privately with zero or minimal information to onlookers.

2. Anonymous: if any records are public (which in the case of blockchain it is), it should be anonymous, with no data tied to your real identity.

3. Fungible: easily transferrable and can be broken down into smaller, yet interchangeable parts. (i.e. 1 bitcoin can be broken down into smaller units, just like we have pennies, nickels, dimes, quarters, and different dollars/naira).

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4. Peer-to-peer: requires no middlemen to send or receive transactions. All validation and settlement for transactions are done in a trustless environment via blockchain technology. No need for banks or clearing houses to settle transactions.

Platforms

The next class of cryptocurrencies are blockchain projects which have programmable functionality, allowing other developers to create decentralized applications (dapps) on top of the protocol. These protocols are thought to power what is called Web 3.0. In contrast to projects like Bitcoin which are not Turing complete and serve a sole purpose of providing a secure environment to send and receive money, these protocols are Turing complete which means that developers can create full-blown applications that can compile and interact with the network. The use here is much more open-ended.

The first project enabling developers to build robust dapps is Ethereum, and the language used to create decentralized applications on Ethereum is called Solidity. Developers and businesses create decentralized applications that are hosted and deployed on the protocol of choice. Think of Ethereum as an app store of the decentralized world. They enable the creation and host the applications, whether they be games, finance apps, news apps, etc.

To date, there are several platform projects, some of the largest are:

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1. Ethereum

2. EOS

3. Tron

The above projects have the most interest from developers and the highest number of decentralized applications running on them. Each of these networks has its own coin associated with it. Much like Bitcoin, these coins act as the incentive for miners to secure the network. These blockchains operate similarly to the currency focused projects, except that they support decentralized applications.

For Ethereum the native coin is Ether (ETH), EOS is EOS, and Tron is TRX. These can be viewed as commodities, as they are required for developers to deploy applications and for users to use them.

Tokens and Collectibles

As mentioned above, developers create decentralized applications (dapps) on these platform networks, like Ethereum. Often times, dapps have tokens associated with them. These are not native cryptocurrencies that are secured by their own network of nodes and miners. Instead, they are the currencies created by the developers that created the applications on platforms like Ethereum.

Let’s take a couple of examples:

1. CVC: is an Ethereum based (ERC-20) token. The CVC token is a token built on top of the Ethereum network, using Ethereum technology. This token is a standalone token that is used as a rewards system for CVC users. It is not a native coin like Ether which acts as an incentive, paying out miners to secure the network. Instead, it is built on top of the Ethereum network, and these tokens are built using Ethereum technology. To send CVC tokens, for example, you need some Ether to power the transaction. This is why Ethers are analogous to a commodity.

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2. Cryptokitties: this project had so much buzz that it actually slowed down the Ethereum network at one point. Cryptokitties is a dapp (decentralized app) which allows users to breed and trade cute, digital collectible kitties, called CryptoKitties.

There are lots of gambling oriented dapps, as well as trading cards, but instead of a central authority facilitating the trading of cards and production of them, it is all done in a trustless way.

So no one can duplicate cards, and digital collectable are truly unique, just like physical collectables.

In Summary…

These are the three niches within the industry.

1. Currency focused projects like Bitcoin, aiming to offer the best form of digital cash possible.

2. Platform projects like Ethereum, which powers web 3.0 and enables developers to create decentralized applications. Think of the App Stores of web 3.0.

3. Tokens and collectables. Similar to regular applications, but with the unique characteristics that blockchain can offer, such as fungibility and uniqueness. Just like you cannot double-spend a bitcoin, you cannot duplicate or fake a collectable, like a CryptoKitty or trading card.

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