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Understanding Crypto: A Foundation to Get Started

Aug 18, 2019

By the end of this piece, you will have a basic understanding of the different types of crypto projects that exist. (6 min)

Newcomers are often overwhelmed by the thousands of cryptocurrencies that exist. The different missions, technical jargon, and lengthy whitepapers can prevent anyone from starting their research. But with the proper educational resources available, entering the space should be more welcoming.

In this piece we’ll break down the three primary classes of cryptocurrencies and why they exist. By the end, you will be able to visualize the industry at a macro level, which will help in understanding the context of each project you research.

Currencies

The first and largest use-case is that of currency, hence the term cryptocurrency.

Examples of the most popular projects tackling the currency use-case are:

1. Bitcoin

2. Monero

3. Litecoin

4. Bitcoin Cash

5. A long list of many others….

These projects have one mission: to offer a secure, low-cost, high-throughput system for sending value in a peer-to-peer fashion - striving to be electronic cash. Emulating physical cash to the digital world comes with several complications that are not obvious at first.

Much like cash, these cryptocurrencies must be:

1. Private: just like a cash transaction, it should be able to take place privately with zero or minimal information to onlookers.

2. Anonymous: if any records are public (which in the case of blockchain it is), it should be anonymous, with no data tied to your real identity.

3. Fungible: easily transferrable and can be broken down into smaller, yet interchangeable parts. (i.e. 1 bitcoin can be broken down into smaller units, just like we have pennies, nickels, dimes, quarters, and different dollars).

4. Peer-to-peer: requires no middlemen to send or receive transactions. All validation and settlement for transactions is done in a trustless environment via blockchain technology. No need for banks or clearing houses to settle transactions.

To identify this type of project here is common jargon you will come across:

1. High-throughput or transactions per second: this is the project boasting their potential capacity for the number of transactions they can handle at any given time.

2. Electronic cash: an obvious term which means the project is aiming for the currency use-case

3. CoinJoin, RingCT, Sonic: these are common technologies that cryptocurrencies implement if they are privacy-focused.

The currency use-case is by far the largest to date. These projects make up a majority of the market capitalization for the entire industry, well over 50%. Bitcoin alone accounts for 68% at the time of writing!

Platforms

The next class of cryptocurrencies are blockchain projects which have programmable functionality allowing other developers to create decentralized applications (dapps) on top of the protocol. These protocols are thought to power what is called Web 3.0. In contrast to projects like Bitcoin which are not Turing complete and serve a sole purpose of providing a secure environment to send and receive money, these protocols are Turing complete which means developers can create full-blown applications that can compile and interact with the network. The use here is much more open-ended.

The first project enabling developers to build robust dapps is Ethereum, and the language used to create decentralized applications on Ethereum is called Solidity. Developers and businesses create decentralized applications that are hosted and deployed on the protocol of choice, using Ethereum as one example. Think of Ethereum as an App Store of the decentralized world. They enable the creation and host the applications, whether they be games, finance apps, news apps, etc.

To date, there are several platform projects, some of the largest are:

1. Ethereum

2. EOS

3. Tron

The above projects have the most interest from developers and the highest number of decentralized applications running on them. Each of these networks has its own coin associated with it. Much like Bitcoin, these coins act as the incentive for miners to secure the network. These blockchains operate similarly to the currency focused projects, except they support decentralized applications.

For Ethereum the native coin is Ether (ETH), EOS is EOS, and Tron is TRX. These can be viewed as commodities, as they are required for developers to deploy applications and for users to use them. Later in this piece, we will explore examples of applications that are created on these platforms and how coins like ETH are truly a commodity in these digital environments.

To identify this type of project here is common jargon you will come across:

1. Dapp or dapp platform: dapp stands for decentralized application and these projects are commonly called “dapp platforms”

2. Smart contracts: smart contracts are basically the codebase that is deployed to the network and defines all the functions needed to take place. It also allows the front-end, client-side application to communicate with the server-side, or in this case, decentralized blockchain network.

3. Web 3.0: a term used to refer to the next evolution of the internet. First, the internet was used primarily to show information, then social media was the catalyst for web 2.0, allowing people to share information and communicate in real-time, and next, we are looking towards web 3.0 where people can transfer value and interact with applications which are censorship-resistant and global.

Tokens and Collectibles

As mentioned above, developers create decentralized applications (dapps) on these platform networks, like Ethereum. Often times, dapps have tokens associated with them. These are not native cryptocurrencies that are secured by their own network of nodes and miners. Instead, they are the currencies created by the developers that created the applications on platforms like Ethereum.

Let’s take a couple of examples:

BRD: That’s us! Associated with our brand is an Ethereum based (ERC-20) token. If you hold a certain amount of BRD tokens, then you are automatically eligible for certain rewards. The BRD token is a token built on top of the Ethereum network, using Ethereum technology. This token is a standalone token that is used as a rewards system for BRD users. It is not a native coin like Ether which acts as an incentive, paying out miners to secure the network. Instead, it is built on top of the Ethereum network, and these tokens are built using Ethereum technology. To send BRD tokens, for example, you need some Ether to power the transaction. This is why Ethers are analogous to a commodity.

Cryptokitties: this project had so much buzz that it actually slowed down the Ethereum network at one point. Cryptokitties is a dapp which allows users to breed and trade cute, digital collectible kitties, called CryptoKitties.

There are lots of gambling oriented dapps, as well as trading cards. There are a couple of trading card games similar to Magic the Gathering, but instead of a central authority facilitating the trading of cards and production of them, it is all done in a trustless way. So no one can duplicate cards, and digital collectible are truly unique, just like physical collectibles. A great place to explore dapps is at dapp.com!

To identify this type of project here is common jargon you will come across:

1. Tokens or utility tokens: tokens are generally the dapp-specific token or currency associated only with that application. This is unlike Ether, which is the native coin that incentivizes miners to secure the network, which these tokens are built on top of. Many times, these tokens are used similarly to loyalty and rewards programs. They should provide utility, hence, they are often called utility tokens.

2. Dapps: overlapping with the platform projects, these projects are indeed called dapps (decentralized applications), also can be stylized as dApps or DApps.

3. Collectibles and games: collectibles and gaming are both common examples of dapps. So, if you see a crypto game, or dapp, it is most likely an app built on top of one of the platform projects.

In Summary...

These are the three niches within the industry.

There are:

Currency focused projects like Bitcoin, aiming to offer the best form of digital cash possible.

Platform projects like Ethereum, which powers web 3.0 and enables developers to create decentralized applications. Think of the App Stores of web 3.0.

Tokens and collectibles. Similar to regular applications, but with the unique characteristics that blockchain can offer, such as fungibility and uniqueness. Just like you cannot double-spend a bitcoin, you cannot duplicate or fake a collectible, like a CryptoKitty or trading card.

Understanding that these are the primary categories and understanding some buzzwords that signal them should make for a proper foundation to begin researching different projects.


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