Unlike some of the other cryptoassets that will be discussed below, cryptocurrencies are by definition decentralized. On most blockchain networks, cryptocurrencies are issued to miners in exchange for the validation of transactions. Once issued, the asset can be sent directly from one wallet to another (P2P). Transactions can therefore be carried out without needing to get approval from any centralized authority.
Cryptocurrencies can be acquired in a few different ways. First, as mentioned above, they can be mined and received directly from the network. Second, they can be received as payment from a crypto-user in exchange for an off-chain service or the sale of an item. Third, they can be purchased or traded for on an exchange.
Exchanges can be either centralized or decentralized. Centralized exchanges (like our partner exchange, ALTERXE
), are businesses that allow users to purchase or sell cryptocurrencies in exchange for national currencies, like GBP or USD. Most centralized exchanges also support crypto-for-crypto trades. Decentralized exchanges (DEX) are online platforms which facilitate peer-to-peer transfers of cryptocurrencies, without the participation of any third-parties. DEXs can only facilitate crypto-for-crypto transactions. Stablecoins
The value of individual cryptoassets frequently varies in relation to other asset classes, such as cash and cash equivalents. As blockchain reaches greater levels of integration with the 'traditional economy,' there arrive moments when it is beneficial for a crypto user to hold an on-chain asset that maintains a stable value in relation to off-chain ones. Stablecoins have been developed to serve this purpose.
Stablecoins are generally not
decentralized. Usually "backed" by an asset like a fiat currency or commodity, these tokens are issued through smart contracts that are deployed on a blockchain network like Bitcoin, Ethereum, or EOS. The most popular stablecoin - and third most popular cryptoasset - in terms of market cap is Tether (USDT), which is backed by the United States dollar. USDT is issued and controlled by a company called Tether Limited. This company holds one USD in a bank account or other financial institution for every token issued.
There do exist projects that have released more decentralized, crypto-collateralized and uncollateralized, stable coins. At the present time, however, these fully on-chain stablecoins remain somewhat disconnected from traditional business processes. Central bank digital currencies
Several countries have announced plans to develop their own digital currencies. More likely than not, these currencies would, in terms of technical infrastructure, resemble stablecoins. While national tax authorities - like HMRC in the UK and the IRS in the US - do not view cryptoassets as money, they likely would for digital tokens issued by their own governments.
It remains unclear how integrated these government-backed currencies will be with the wider digital asset world. In an ideal scenario, it would become easy to trade them for decentralized tokens and cryptocurrencies on pre-existing crypto exchanges.