Crypto

Why Are There So Many Cryptocurrencies, and Why Do We Need Them?

Since the pseudonymous Satoshi Nakamoto released his Bitcoin whitepaper in 2008, the race to develop the most efficient, secure, and scalable blockchain has only intensified. For instance, many altcoins, such as Ethereum, Polygon, and Solana, have created solid reputations for themselves as trusted tokens with a history of decent market performance.

On the other hand, many tokens that initially launched with a bang have since faded into obscurity, with lots of crypto enthusiasts and investors losing their hard-earned funds.

Indeed, different cryptos have unique goals, with their innovation geared to solve certain industry problems. More than any reason, this explains why certain projects thrive and others fail. In this article, you’ll learn why there are so many cryptocurrencies and how the most popular tokens have managed to remain relevant. Keep reading to learn more!

The Cryptocurrency Dilemma: Why are There So Many Cryptos?

Today, there are well over 20,000 cryptocurrencies in the market. Suppose you’re wondering why there are multiple cryptocurrencies available today. In that case, the answer’s quite simple — each project seeks to bring a unique innovation that’ll increase its utility and thus appeal to investors.

The first cryptocurrency, Bitcoin, sought to introduce a secure means of digital, peer-to-peer payment. Ethereum, the first major altcoin, improved on Bitcoin’s innovation by onboarding the idea of smart contracts.

Today, many blockchains employ smart contracts, allowing developers to create decentralized apps (dApps) like Uniswap, Compound, MakerDAO, Wormhole, and PancakeSwap. Still, other crypto projects focus on real-world utility and have expanded into niches like gaming, fitness, and carbon offsetting.

However, it is important to recognize that several cryptocurrencies are just shams. They often gain momentum on social media, where investors are drawn in by the speculation. After a while, they crash, with the developers making off with all the funds.

For instance, Squid coin spiraled to its ends as investors were lured by the promise of a coin based on a trending Korean TV series. Another example is the AnubisDAO incident, where investors lost a combined $60 million just hours after its public launch. To avoid being a victim of such circumstances, it is vital to verify the authenticity of each project by carrying out as much research as possible.

What Are The Different Types of Cryptos?

There are various types of cryptocurrencies. Some of them include the following:

Governance Tokens

These cryptocurrencies allow holders to vote on network policies, protocols, and other key decisions linked to the blockchain project. Examples include Compound, Aave, and Decentraland.

Utility Tokens

These are cryptocurrencies created to serve specific purposes within a blockchain ecosystem. They allow users to perform certain actions in a dApp. For instance, the Basic Attention Token (BAT) is a utility token used to incentivize digital content creators within the Brave browser. Security tokens Security tokens are digital assets that represent the ownership, transfer of value, or promise of returns of traditional investments like bonds, stocks, and other securities. For example, a company can issue its stocks to investors in the form of security tokens.

Non-Fungible Tokens (NFTs)

NFTs are digitized representations of media on the blockchain. They usually take the form of artworks, music, and even rare documents. Although NFTs are minted on other networks like Solana and Polygon, the Ethereum blockchain is the most used platform for NFT minting.

Important Cryptos to Know About

Of all the cryptocurrencies in the world, here are the most popular ones due to their considerable market caps:

Bitcoin (BTC)

BTC is the premier token and remains the gold standard for all cryptocurrencies. With a market cap of $458 billion, BTC is the most traded token in the market.

Ethereum (ETH)

ETH’s $201 billion market cap is primarily a function of its status as the number one altcoin. The functionality and efficiency of its EVM (Ethereum Virtual Machine) and DeFi-based blockchain have propelled it to considerable heights in the industry.

What are Stablecoins?

Unlike regular tokens, whose prices are volatile, stablecoins are cryptocurrencies whose values are pegged to real-world assets like fiat or gold. Examples of stablecoins include the following:

USDT

Tether has a market cap of $68 billion, making it the most prominent stablecoin. In 2022, the token temporarily lost its dollar peg, prompting widespread debate about its long-term viability as a stablecoin. Nevertheless, USDT continues to grow strong today.

USDC

The USD Coin is also pegged to the dollar and has a market cap of $42 billion. The token aims to become a major means of digital payments with a reputation for security and blazing speeds.

DAI

Boasting a $5 billion market cap, DAI is an Ethereum-based stablecoin backed by collateral on the Maker decentralized autonomous organization platform. It uses smart contracts to keep its value as close to $1 as possible.

Other Cryptocurrencies to Consider

Other popular cryptocurrencies that are traded at multiple crypto exchanges are:

Solana (SOL)

Solana uses a proof-of-history consensus mechanism to scale and provide better transaction speeds than what is obtainable on the Ethereum platform. Today, Solana has a market cap of $9 billion.

Polkadot (DOT)

DOT is the native token of the Polkadot blockchain and was designed to facilitate interoperability across multiple blockchains without needing a trusted third party. DOT has a market cap of $8 billion.

Final Thoughts

The future of cryptocurrency is linked to the long-term viability of blockchain technology as a whole. In the meantime, the global adoption of cryptocurrencies as a digital payment standard is slow, given that crypto is inherently a volatile asset.

However, given the struggles of modern banking and finance technologies to scale and deliver efficient services, cryptocurrencies, and their underlying blockchain technology will soon become a mainstay in the global economy.

Before then, certain cryptocurrencies with little or no utility will have to give way. Bitcoin remains placed to dominate the industry in years to come. However, new cryptocurrencies focused on scalability and speed will also experience increased demand and popularity as the world advances technologically.