Types of Cryptocurrency Explained

By Melissa Finnegan0 Comments
 
cryptocurrency coinsDigital currency is designed to work as a medium of exchange. There are many different types of cryptocurrency, but these six are among some of the more well-known currencies.

1. Bitcoin (BTC)

One of the most commonly known currencies, Bitcoin is considered an original cryptocurrency. It was created in 2009 as an open-source software. The author of the whitepaper that established this digital currency was under the pseudonym Satoshi Nakamoto.

How does Bitcoin work?

Using blockchain technology, Bitcoin allows users to make transparent peer-to-peer transactions. All users can view these transactions; however, they are secured through the algorithm within the blockchain. While everyone can see the transaction, only the owner of that Bitcoin can decrypt it with a “private key” that is given to each owner.

Unlike a bank, there is no central authority figure in the Bitcoin. Bitcoin users control the sending and receiving of money, which allows for anonymous transactions to take place throughout the world.

2. Litecoin (LTC)

Litecoin was launched in 2011 as an alternative to Bitcoin. Like other cryptocurrencies, Litecoin is an open source, global payment network that is completely decentralized, meaning there are no central authorities.
What’s the difference between Bitcoin and Litecoin?
Here are a few differences between these digital currencies:
  • Litecoin is believed to feature faster transaction times.
  • The coin limit for Bitcoin is 21 million and Litecoin is 84 million.
  • They operate on different algorithms, Litecoin’s being “scrypt” and Bitcoin’s is “SHA-256.”

3. Ethereum (ETH)

Created in 2015, Ethereum is a type of cryptocurrency that is an open source platform based on blockchain technology. While tracking ownership of digital currency transactions, Ethereum blockchain also focuses on running the programming code of any decentralized application, allowing it to be used by application developers to pay for transaction fees and services on the Ethereum network.

4. Ripple (XRP)

Ripple was released in 2012 that acts as both a cryptocurrency and a digital payment network for financial transactions. It’s a global settlement network that is designed to create a fast, secure and low-cost method of transferring money.

Ripple allows for any type of currency to be exchanged, from USD and Bitcoin to gold and EUR and connects to banks, unlike other currencies. Ripple also differs from other types of digital currencies because its primary focus is not for person-to-person transactions, rather for moving sums of money on a larger scale.

5. Bitcoin Cash

Bitcoin Cash is a type of digital currency that was created to improve certain features of Bitcoin. Bitcoin Cash increased the size of blocks, allowing more transactions to be processed faster.

6. Ethereum Classic

Ethereum Classic is a version of the Ethereum blockchain. It runs smart contracts on a similar decentralized platform. Smart contracts are applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third-party interface. Like Ethereum, it provides a value token called “classic ether,” which is used to pay users for products or services.


Cryptocurrency in an IRA

Did you know that you can invest in these six different cryptocurrencies within your IRA at Equity Trust? Learn about the potential tax advantages, how to get started and more about digital currency in a self-directed retirement account with our free guide.


Prior to making any investment decisions, please consult with the appropriate legal, tax, and/or investment professionals for advice. As a self-directed IRA custodian, ETC will not provide investment advice or risk assessment of any investment. The digital currency market may experience a high degree of volatility and clients should consult with an investment professional before any investment is made.