Cryptocurrency is a digital asset designed to work as a medium of exchange that uses cryptography to secure financial transactions, control the creation of additional units, and verify the transfer of assets.
Cryptocurrencies are classified as a subset of digital currencies and are also classified as a subset of alternative currencies and virtual currencies.
Broadly they are divided into three categories:
- Decentralized currency
- Utility tokens
- Stable Coins
Let’s look at them closely,
1. Decentralized currency- these are cryptocurrencies intended to serve as a medium of exchange. They exist only in digital form and use encryption technology for security purposes, hence decentralized currencies.
They must be mined or exchanged for fiat currency through a cryptocurrency exchange. Most have no central authority governing them, though some follow a similar centralized structure.
Bitcoin is the first decentralized digital currency, also called a global reserve currency. It was created in 2009 by an unknown person or group of people under the name Satoshi Nakamoto and released as open-source software. Ethereum, Litecoin, Monero, NEO, Dash, Ripple, Ethereum Classic are other examples of decentralized currency.
2. Utility tokens- these are cryptocurrencies that act as a tool or payment method for use in online transactions and services. They are not intended as a medium of exchange but rather as a utility for the blockchain platform they reside on. The defining feature of these tokens is not what they accomplish themselves but what can be done with them on an associated platform.
Tokens can represent anything from voting rights and access privileges to products and services. For example, the finance utility tokens like BNB and KCS on the Binance and KuCoin exchanges, respectively, give their holders a fee discount.
3. Stable coins are cryptocurrencies pegged to another asset like the US dollar or gold to maintain a stable value. Their purpose is to provide a more stable option for cryptocurrency users and to reduce the volatility of prices.
Stablecoins are often used as a way to hedge against price fluctuations in other cryptocurrencies. The most popular stable coin is Tether (USDT), which is pegged to the US dollar. There are also other fiat-backed stable coins, such as Digix Dollar (DGX), which is pegged to the price of gold.
Their Role in Metaverse-
Cryptocurrencies and their underlying blockchain technology play an important role in Metaverse. Metaverse is a decentralized platform that utilizes blockchain technology and digital identities to create an open, public, and transparent value exchange network.
Smart contracts on the Metaverse blockchain can be used to issue and trade digital assets. They can be used to create business contracts, act as receipts for transactions (similar to wallets), or even be used in games.
As Metaverse expands, these digital identities will become more robust, with an increasing number of services that can be accessed on the blockchain. Cryptocurrencies and their underlying blockchain technology will become an integral part of this ecosystem. It will provide the security, transparency, and efficiency needed to facilitate transactions on the Metaverse blockchain.
Are you excited to be part of the new era? Stay tuned as we continue to release more articles about different aspects of Metaverse, such as digital identities, oracle, and VRF.
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