Types of cryptocurrencies

by Lumai Mubanga

There are three types of cryptocurrencies, namely the self-organizing cryptocurrency, the corporate cryptocurrency and state-based cryptocurrency. This article will highlight some significant differences between them.

Self-Organizing

The self-organizing cryptocurrency is a system of value. The best example is bitcoins itself organizing because it is not controlled by any organization. As such, anyone can join the network and leave at any time. It allows the exchange of value peer to peer between self-organizing also mean that players on the network do not use their own names. Leveraging on blockchain distributed systems, it uses Bitcoin protocols rather than the global financial system to transfer value across national borders.

Corporate cryptocurrency

Corporate cryptocurrency is a relatively new cryptocurrency. The best example is Libra, a Facebook anchored cryptocurrency set to be launched in 2020. With about 2.7 billion users, Libra could help Facebook revolutionize how Facebook users send and receive money across platforms. When successfully implemented, users will send money to other users as easily as sending a message on WhatsApp. However, it will not be run by Facebook but will be governed by the Independent Libre Association to which Facebook is a member. Could this be other revolutionary breakthroughs on the horizon? 

Fiat cryptocurrencies

These are state-sponsored or state-run cryptocurrencies. The biggest and well known is China’s Digital Currency Electronic Payment project DCEP. This has been sponsored by the country’s central bank. Reported to be powered by blockchain and it may be implemented through a cryptographically secure set of digital wallets. However, what sets it apart is that the central bank can track citizens who use it. The central bank can also supervise transactions. Unlike bitcoins, it appears to be a state asset in every sense. Its main purpose is to give the Chinese authority oversight and control over the flows of money in the Chinese economy.  There are two reasons why countries sponsor cryptocurrencies with a measure of control over it. Firstly, it can be a pre-emptive strategy to block the entry of newer global payment systems that could prove better or just an alternative to its currency. That, of course, helps to curb illegal cash flows within and outside the state.  Additionally, it can be used to extract benefits from what’s called digital seigniorage. This is where the Central Bank just mints more crypto coins. This allows the state to profits from the difference between the Face value of the cryptocurrency and the cost of minting the new coins. The cost, in this case, could be zero depending on the system’s mining process. 

Conclusively, the three main types of cryptocurrency have their own unique functions and management policies. Overall, each type have its own sub currencies. Corporate cryptocurrencies may just prove to be another disrupter in the crypto space.