Crypto meaning and types of cryptocurrencies
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What is Crypto: Cryptocurrency Meaning + Types and Benefits of Cryptocurrencies

7 min read

When cryptocurrencies started to catch on, some years ago, many people called them the cash of the internet. It’s an accurate enough description. But nowadays, crypto is a lot more than just that. So if you want to know the meaning of crypto, see how it works and learn some basics like different types of cryptocurrencies and the difference between them, you should read on. We will also briefly talk about the benefits of crypto.

Crypto Meaning: What Are Cryptocurrencies?

Cryptocurrencies are the best known and most used feature of the blockchain technology. They are like digital money and they allow users to make transactions without the need for any middleman like a bank. But they can have other applications as well.

If you’re not familiar with the blockchain, you should first read our beginner’s guide to the blockchain technology. It will help you understand crypto a lot better.

As we mentioned, most cryptocurrencies run on a blockchain. This means several things:

First: It means that every transaction made using a cryptocurrency is validated and recorded by a decentralized network of computers that run the blockchain. These computers are usually referred to as nodes.

Nodes validate the transactions by consensus. For example if you want to send some crypto to your friend, they check if you actually have the amount you want to send. And if you have enough, they let you make the transaction. Once it’s done, they record it on a new block which is then attached to the previous block on the chain. More than half (majority) of the nodes should approve the transaction for it to actually go through. This makes every transaction a trustless and safe process.

Every node also has a full copy of the whole blockchain and everyone can see the data recorded on it. So the whole system is transparent and immutable, meaning that no one can change any data about the transactions or about how much crypto someone has.

Second: Using the blockchain technology removes the need for a central organization or a main server or database. This eliminates the necessity of trusting a bank and also reduces the actual cost of a transaction which results in lower transaction fees for the users.

Third: And finally the use of cryptography by the blockchain, in addition to the decentralization, makes the crypto transactions a lot safer than the traditional transactions made by the banks. It also gives the users the ability to remain anonymous.
I have talked about the way blockchains use cryptography in another post. (You can read it here.) But even if a cryptocurrency doesn’t utilize a blockchain, it would use cryptography for security. Hence the name.

So let’s recap. What is crypto?
Cryptocurrencies are digital currencies (money) which are secured by cryptography and usually use the blockchain technology to make transactions faster, cheaper and safer.

Cryptocurrencies vs. Fiat Money

You should also know: “Fiat currencies” are the traditional currencies backed by governments that we all use every day.

crypto vs fiat - bank vs blockchain
crypto vs fiat – bank vs blockchain

What Are Different Types of Cryptocurrencies?

What’s the Difference Between Coins and Tokens?

Because they can both be used as method of payment, most people do not differentiate between them. But coins and tokens are actually different.

As we said earlier, every cryptocurrency runs on a platform, usually a blockchain. Each platform has its own protocol and its own coin. For example we have the bitcoin and ethereum blockchains and then we have the bitcoin and ethereum coins.

So these coins are the native currency of their blockchain.

Now if someone uses an existing blockchain to build his/her own currency, the result is a token. For example, we have tokens like chainlink or uniswap that have been built on the ethereum blockchain.

One other difference is that tokens can represent any kind of asset or service or some other utility but coins are just a digital currency.

What Are Altcoins?

At the beginning, there was bitcoin! Then came the other cryptocurrencies. Because bitcoin was the biggest and most important name in the crypto world, people started calling everything else an “alternative coin” or altcoin.

So every cryptocurrency except bitcoin can be called an altcoin.

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What Are Stablecoins?

Stablecoins are tokens that have their prices pegged to an asset or fiat (regular) currency. For example you can have a token that’s always worth one USD or one ounce of gold.

What Are the Benefits of Crypto and Are and Why Should You Care?

I’m sure you’ve heard a lot of negative and some positive things about cryptocurrencies. Here, I’m gonna talk about some of the positives, like democratizing money and investments, and by the end, you’ll be able to deduce why some people only mention the negatives.

1. Faster and Cheaper Transactions

Depending on which country we live in and which bank we use, we’ve all had differing degrees of bad experiences when it comes to financial transactions. Let’s say, for whatever reason, I want to give you some money. If I use a bank, it may take days or even weeks for you to actually get it. And if you’re in a different country or use a different bank, I may have to pay a very large sum to the bank as the transaction fee.

Now what if I were to use a cryptocurrency to pay you? You would get your money in seconds or minutes at the most. And you can start spending it right away. I would also pay a much smaller fee to the nodes running the blockchain for validating my transaction. So it’s a win-win-win for ordinary people and a lose for banks.

2. Privacy and Data Protection

Cryptocurrencies all use cryptography in different ways to provide privacy for every user. Everyone can see your transaction and how much crypto you have but no one will know your identity. It’s a fascinating mix of transparency and anonymity.

3. A New Way of Funding Startups

You’ve probably heard of ICOs and ITOs before. ICO stands for initial coin offering and ITO is initial token offering. Startups can use these methods to raise capital from people who believe in their project and mission instead of hedge funds or venture capital firms. This opens up a lot of possibilities and gives people a chance to invest their limited funds in projects and causes they believe in. Again, a win for the ordinary people and entrepreneurs and a lose for financial institutions.

4. Eliminating Fraud and Theft

I’m talking about some specific types of fraud. For example, in crypto there is no forgery. You can have fake dollar bills but you can’t have fake bitcoins.

In crypto, you can’t cancel a completed transaction or fake a transaction altogether. Because everything gets recorded on the blockchain which is decentralized and immutable.

And in case of theft, if someone wanted to steal my crypto, they would need to hack a majority of the nodes running the blockchain at the same time. As you can guess, this is not an easy task.

I’m sure you can find some other examples yourself.

5. Serving the Unbanked and Underbanked People

The world bank estimated in their 2017 report that “globally, 1.7 billion adults remain unbanked”. Using blockchain technology and cryptocurrencies, can provide these people with some benefits of banking like holding their money securely, getting loans, etc. and drive their local economies forward.

These were just a few obvious benefits of cryptocurrencies. But we’re just scratching the surface here. This industry is very young and the people pushing it forward are very bright. I can guarantee that in a few years time, you can list a lot more benefits from your own personal experience with the crypto world.

Wanna know why the banks and financial institutions hate crypto? Learn about the benefits of cryptocurrencies here. Share on X

Last Words

Blockchain technology and cryptocurrencies are the next natural evolution for our flawed financial systems. I think everyone needs to know about them and the benefits they can offer. Do you agree?

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Comment below if you have any thoughts or questions about cryptocurrencies.

***Last Updated on 26 March 2022 by Hamed Derakhshani (Guy with a Wallet)

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Avatar of Hamed Derakhshani (Guy with a Wallet)

I am Hamed aka Guy with a Wallet. My educational background is in management, economics and insurance. And for the past 8+ years, I’ve been a professional writer and content creator. My mission here is to educate people on decentralization, cryptocurrencies, economics and personal finance.

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