Modules for Personal Finance
Introduction to cryptocurrencies
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How many cryptocurrencies are there?
Ever since the introduction of Bitcoin, there has been a significant inflow of different cryptocurrencies. While some operate on the same principle as Bitcoin, other types of cryptocurrencies feature completely different methodologies. This begs the question - just how many cryptocurrencies are there in the world right now?
The answer to this question, however, is not definitive though. There are currently more than 12,000 cryptocurrencies in the world. That said, not all of them are active, genuine, or traded frequently. Data suggests that as of the end of the year 2021, around 1,000 new cryptocurrencies were being added each month!
That’s not all. The total market cap of crypto on a global scale is also expanding quite rapidly. At present, the market cap is hovering around $1.90 Trillion. And seeing as the daily volume of cryptocurrencies being traded each day is around $92.16 billion, the global market cap of this unique asset is likely to cross the $2 Trillion mark in just a few months.
Why are there so many cryptocurrencies?
Now that you know just how many cryptocurrencies are there, you’re probably wondering why there are so many, aren’t you? Well, the reason for that is quite simple.
Blockchain, the technology that cryptocurrencies are based on, is completely open-source. What this essentially means is that the technology is not owned by any private entity or individual. And that anyone can freely utilize the technology for their own benefit without worrying about legal repercussions or having to pay for it. Since the blockchain technology is free to access and use, developers have leveraged it to create different cryptocurrencies of their own.
Another major reason for such a high number of cryptocurrencies has to do with the process of creation of cryptos. Creating your very own currency using blockchain technology is quite easy for individuals with a fair bit of coding knowledge. You can use the existing code of a cryptocurrency, make a few changes to it, and introduce your very own one.
Considering the fact that cryptocurrencies are all the rage these days, the number of cryptocurrencies in circulation is only likely to increase in the future.
The four main types of cryptocurrencies
Cryptocurrencies that are currently in circulation can be classified into one of four main types - currency, asset, object, and memecoin, depending on the objective of the currency. Here’s a more in depth look at each of these types of cryptocurrencies.
A cryptocurrency that’s created with the aim of being used as a currency is categorized under this type. Bitcoin, the first cryptocurrency, was meant to be an alternative to traditional currency and was created with the aim to make cross-border payments cheaper and more cost effective by eliminating the dependence on central entities like banks and credit card companies.
Cryptocurrencies whose value is derived from the value of an external asset are categorized under this type. These types of cryptocurrencies are known as stablecoins. For instance, USDT, which is a stablecoin, derives its value from the US Dollar. Similarly the value of Gold GLC is dependent on the value of Gold.
Cryptocurrencies that are created to finance projects that aim to solve real world problems are categorized under this type. Wondering how they work? Here’s how. The creators of a project typically issue their own cryptocurrencies for a certain specified value. Investors willing to fund the project will have to buy these cryptocurrencies. The funds from the sale of such cryptocurrencies will go to the project creator, who in turn uses it to develop their product. And as a reward, the investors who backed the project get special access or discounts once the project hits the ground running.
Meme coins or joke coins
Cryptocurrencies that are solely created as a joke, inspired by memes, or ones that serve absolutely no purpose or goal are categorized under this type. These coins are basically purely speculative assets with no real asset backing. Many such meme coins end up being scams, where unsuspecting investors looking to make a quick buck get cheated by the creator. Dogecoin is one of the most popular and well-known meme coins that has a market cap of around $17.5 billion.
The 3 largest cryptocurrencies based on their market capitalization
Cryptocurrencies are generally ranked based on their market capitalization. Going by the market cap, the following three cryptos are the largest in the world.
No surprises here. Bitcoin, the world’s first ever cryptocurrency is by far the largest crypto in terms of market cap. With more than $820 billion in market cap, Bitcoin is one of the most traded cryptocurrencies in the entire world. As of March 03, 2022, the price of one Bitcoin is around $43,230.
First envisioned as a competition to Bitcoin, Ethereum was one of the first ‘alt coins’ to have ever hit the cryptocurrency space. One of the major advantages of Ethereum is that it allows for smart contracts to be deployed within its blockchain. Although not as pricey as Bitcoin, Ethereum, as of March 03, 2022, is priced at $2,885 per coin.
One of the many stable coins in circulation at the moment, Tether is a cryptocurrency that derives its value from the US Dollar. And so, the price of one Tether coin is set at $1. One of the major selling points of Tether is that it acts as a link crypto. For instance, if you wish to move from one cryptocurrency to another, you can make use of Tether to do so instead of moving back to dollars and then to cryptocurrency again.
We’ve come to the end of yet another chapter in this module. Now that you know all about cryptocurrencies, in the next chapter, we’ll explore the relationship between crypto and fiat currencies.
A quick recap
- There are currently more than 12,000 cryptocurrencies in the world.
- At present, the market cap of cryptocurrencies is around $1.90 Trillion, with daily volume of trades being around $92.16 billion.
- Blockchain, the technology that cryptocurrencies are based on, is completely open-source, leading to developers leveraging it to create different cryptocurrencies of their own.
- Creating your very own currency using blockchain technology is quite easy for individuals with a fair bit of coding knowledge.
- Cryptocurrencies can be classified into one of four main types - currency, asset, object, and memecoin, depending on the objective of the currency.
- A cryptocurrency that’s created with the aim of being used as a currency is categorized under the currency type.
- Cryptocurrencies whose value is derived from the value of an external asset are categorized under the asset type.
- Cryptocurrencies that are created to finance projects are categorized under the object type.
- Cryptocurrencies that are solely created as a joke, inspired by memes, or ones that serve absolutely no purpose or goal are categorized under the meme coin / joke coin type.
- Bitcoin, Ethereum, and Tether are three of the largest cryptocurrencies in the world in terms of market capitalization.
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