There are over 13,506 cryptocurrencies listed on coinmarketcap.com. There are 180 fiat currencies in the world issued by governments and recognized by the United Nations. Thirteen years ago there was only Bitcoin that had the purpose of decentralizing money out of the hands of central banks and creating a public accounting system for exchange. Bitcoin was the original blockchain cryptocurrency. Since then many new cryptocurrencies have emerged trying to solve new problems with blockchain technology. A few of them have new functionality for attempting to improve on the past cryptocurrency weaknesses. Most are purely speculative instruments with no fundamental value or differing user case.
Many of the new cryptocurrencies try to create their own unique underlying blockchain technology to solve the issues of proof of work energy usage, slowness of transactions, volume of transactions, or gas fees. Others try to be the tokens that innovate areas of finance like data storage, exchange, privacy, security, machine learning, yield, smart contracts, NFTs, payment processing, social networks, supply chain logistics, digital content ownership, or physical ownership. Underlying blockchain technology gives developers the ability to create different cryptocurrencies with different user cases and functions.
Most cryptocurrencies function solely as currencies of exchange and for trading. They can be a store of value and hedge against fiat currency devaluation as well as used for blockchain transactions and real world purchases. Many of the first and most popular ones are in the category of traditional currency usage.
Others function with utility and are part of deeper blockchain infrastructure. For example, Ethereum allows other cryptocurrencies to be built and launched on top of their blockchain networks with its Virtual Machine. Ether is the cryptocurrency used on the Ethereum blockchain. Bitcoin is a cryptocurrency on its own self contained blockchain. Bitcoin invented blockchain technology, Ethereum created a blockchain development platform, and all other cryptocurrencies are new iterations of these technologies in some form.
Satoshi Nakamoto created blockchain technology and used it to develop Bitcoin. quickly others developers realized they could use the same blockchain technology to create their own platforms for many other uses. Charlie Lee created Litecoin, considered to be one of the first altcoins. Many others would continue to follow up until today, some are innovative with new concepts on blockchain technology others are simply built on existing blockchains.
Why are there so many cryptocurrencies?
- Most new cryptocurrencies are created with the motivation of the creator to become wealthy if their token turns out to be the next big thing.
- Blockchain technology isn’t controlled by anyone and everyone can develop on exiting ones or create new ones. Anyone with the knowledge of blockchain development can create their own cryptocurrency.
- The barrier to entry is relatively low being only information and work.
- Many new cryptocurrencies are driven be the desire to innovate and create a new better blockchain or technology application.
- Cryptocurrencies are thought of as apps with each serving a specific purpose, this creates room for many different types.
- The success of initial coin offerings (ICOs) help fuel the desire for new ones as they continue to be successful.
- New cryptocurrencies emerged to be used within blockchain gaming as rewards and transactions.
- New cryptocurrencies emerged to be used within metaverse worlds as rewards, to be used to purchase crypto real estate, utility NFTs within the virtual worlds, and for in-world transactions.
- Cryptocurrency development is a passion for many developers.
- Forking of existing blockchains create new cryptocurrencies used on the new blockchain. Forks are splits that happen in the transaction history based on different user opinions about transaction history. These forks create new versions of an existing cryptocurrency after creating a divergence in the existing transaction history. Bitcoin forks created Litecoin, Bitcoin Cash, and Bitcoin Gold. Litecoin forked into a new crypto called Litecoin Cash. Ethereum Classic (ETC) was a fork that emerged from Ethereum (ETH) after a hack that created a disagreement about maintaining the existing transaction history. A Zcash fork resulted in Zclassic (ZCL) and then a twin fork between ZCL and Bitcoin resulting into Bitcoin Private.
The most important thing is to fully understand what you are buying with a cryptocurrency and its full tokenomics fundamentals.