What is cryptocurrency? Where to trade cryptocurrencies? What types of cryptocurrencies are there?

Cryptocurrency is a decentralized digital asset based on blockchain technology, mainly traded through exchanges or decentralized platforms. The core features of cryptocurrencies include: 1. Decentralization, 2. Encryption security, 3. Anonymous or pseudo-anonymity, and 4. Limited issue.

1. What is cryptocurrency?

Cryptocurrency is a decentralized digital asset based on blockchain technology. It ensures transaction security and controls currency issuance through cryptography principles, and does not rely on any central organization (such as governments or banks). Its core features include:

• Decentralization: Data is stored on a distributed ledger (blockchain) without a single manager.
• Encryption security: Use cryptography to protect transactions and accounts from tampering.
• Anonymous or pseudo-anonymity: Some currency (such as Bitcoin) transaction records are traceable, but the account identity is usually anonymous.
• Limited issue: The total amount of most cryptocurrencies is fixed (such as the maximum of 21 million Bitcoins) to avoid inflation.

2. Where to trade cryptocurrencies?

Cryptocurrency trading is mainly conducted through exchanges or decentralized platforms and is divided into the following categories:

1. Centralized Exchange (CEX)

• Features: The platform centrally manages user funds and provides transaction matching, fiat currency exchange and other services, suitable for novices.
• Mainstream platforms (responsibility needs to be paid attention to):
  • Binance : The world has the largest number of users and supports multi-currency trading and derivatives (contracts, options). Some countries require KYC certification.
  • OKX : Provides spot, contract, DeFi and other services, and its compliance license covers many countries.
  • Coinbase: US compliance exchange, supports fiat currency purchases (such as US dollar and euro), suitable for users with compliance needs.
  • Kraken: An old exchange with high security and is regulated by the United States and the European Union.
• Risk: There are risks such as platform closure (such as FTX incident), regulatory policy changes, hacker attacks, etc. It is recommended to choose a platform that holds a compliance license (such as the US MSB, EU MiCA).

2. Decentralized Exchange (DEX)

• Features: Users trade directly through smart contracts, no custodial funds are required, and they are highly anonymous, but the operating threshold is high.
• Mainstream platforms:
  • Uniswap: The largest DEX on the Ethereum chain, supports ERC-20 token trading, and has a high degree of decentralization.
  • PancakeSwap: Based on Binance Smart Chain (BSC), low transaction fees and supports IFO (initial farm issuance).
  • dYdX: Supports spot and perpetual contract transactions, and some functions require pledge platform coins (DYDX).
• Risk: smart contract vulnerabilities (such as code errors, flash loan attacks), dispersed liquidity, and high price slippage.

3. Traditional financial platform (partially supported)

• Some compliant securities platforms or banks (such as Robinhood and Grayscale in the United States) provide cryptocurrency trading or fund products, but the varieties are limited (usually only mainstream coins such as Bitcoin and Ethereum).

4. Peer-to-peer trading (P2P)

• Users directly trade with other users (such as LocalBitcoins) through the platform, support fiat currency and cryptocurrency exchange, and pay attention to the credit risks of counterparty.

3. The main types of cryptocurrencies

Cryptocurrencies can be classified by function, technology, or ecosystem, and the following are common categories:

1. Base currency (native currency)

• Bitcoin (BTC): The first cryptocurrency, positioned as "digital gold", has long ranked first in market value.
• Ethereum (ETH): The second largest cryptocurrency, based on smart contracts to support applications such as DeFi and NFT, will complete the "merger" and turn to Proof of Stake (PoS) in 2022.

2. Platform coins

• Tokens issued by the exchange are used for fee deductions, voting governance, etc. within the platform ecosystem, such as:
  • BNB (Binance Coin): Binance platform coin, which can be used to pay handling fees, participate in IFOs, etc.
  • OKB (OKB): Ouyi platform currency, supports transaction mining and ecological construction.

3. Stable Coin

• Cryptocurrencies anchored by fiat currencies (such as USD), stable price (1:1 peg), used for trading media or hedging, such as:
  • USDT (Tether): The largest stablecoin with market value, issued on multiple chains such as Bitcoin and Ethereum.
  • USDC (USD Coin): issued by Circle, with high compliance and regulated by the United States.
  • DAI: Decentralized stablecoins, generated by collateralized crypto assets (such as ETH).

4. DeFi (Decentralized Finance) Tokens

• Functional or governance tokens used in decentralized financial protocols, such as:
  • UNI (Uniswap): Uniswap exchange governs tokens, and users can vote to decide on platform rules.
  • AAVE: The governance token of the lending agreement AAVE supports mortgage lending, flash loan and other functions.

5. NFT related tokens

• Eco-tokens for non-fungible tokens (NFTs) are used to purchase, trade NFTs or participate in community governance, such as:
  • MANA: Tokens of the virtual world Decentraland, virtual land can be purchased.
  • SOL (Solana): The native currency of the high-performance public chain Solana, supports low-cost NFT minting.

6. Cross-chain/public chain tokens

• Native coins that support multi-chain interoperability or independent public chains, such as:
  • DOT (Polkadot): The governance token of Polkadot ecosystem, supporting cross-chain data transmission.
  • AVAX (Avalanche): The native currency of the high-performance public chain Avalanche, focusing on fast transaction confirmation.

7. Altcoin

• Other cryptocurrencies other than Bitcoin, including technological innovation coins (such as Litecoin LTC), imitation coins (such as Dogecoin DOGE), etc., are at high risk and have large market value fluctuations.

8. Fork coins

• New currencies generated by blockchain forks, such as:
  • Bitcoin Cash (BCH): Bitcoin fork was generated in 2017, and blocks were expanded to increase transaction speed.
  • Ethereum Classic (ETC): In 2016, Ethereum was forked due to DAO events, retaining the history of the original chain.

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