2. What Are Cryptos?

Monday 21st February 2022

A Blockchain can have 1 or more “smart assets”. Calling these assets cryptocurrencies is not accurate because all blockchain smart assets do NOT work as currencies. The Indian law calls them “virtual digital assets”. I prefer to simply call them “Cryptos”.

A Blockchain can have 1 or more “smart assets”. Calling these assets cryptocurrencies is not accurate because all blockchain smart assets do NOT work as currencies.

The Indian law calls them “virtual digital assets”. I prefer to simply call them “Cryptos”.

There are 9000+ Cryptos being actively traded in 450+ exchanges across 50,000+ market pairs.

Based on my analysis, Cryptos can be divided into 11 categories:
R = Ready money e.g. Bitcoin (BTC)
O = Open Blockchain Tokens e.g. Wrapped Asset Token (WRAP)
H = Hush / privacy coins e.g Monero (XMR)
A = Application coins e.g. Filecoin (FIL)
S = Security tokens e.g. Exodus
N = Non-Fungible Tokens (NFTs) e.g. Crypto Kitties
A = Algorithmic stablecoins e.g. Frax (FRAX)
G = Governance tokens e.g. Uniswap (UNI)
P = Public Blockchain natives e.g. Ether (ETH)
A = Asset-backed tokens e.g. Tether (USDT)
L = Lending / Borrowing cryptos e.g. Aave (AAVE)

I will go deeper into these 11 categories in the next lesson.

For now, let’s understand how Cryptos are created. There are 2 common ways of creating Cryptos. One is the style used by Bitcoin and the other is the style used by Ethereum tokens.

Bitcoin-style Cryptos

In the Bitcoin-style, there are a bunch of computers / entities called miners who are constantly trying to solve mathematical puzzles. Roughly every 10 minutes, one of these miners wins this race to solve the puzzle.

This miner wins a reward which is currently 6.25 bitcoins. That’s about $240,000. Yes, you read that right. Every 10 minutes there is someone getting $240,000 worth of bitcoin.

But don’t get too jealous. Mining is a very expensive operation and requires tons of money to be spent on computers and electricity. And you can never be sure how much you will actually end up earning.

Many years ago anyone could mine or create bitcoins using a laptop! Well, not anymore. Today you need a ton of computing power for this.

Another thing to remember is that in most Bitcoin-style Cryptos, there is no “pre-mining”. This means that no Cryptos are created upfront and distributed to the project founders. The blockchain starts with 0 Cryptos and new Cryptos are “created” and earned by miners.

Ethereum-token style Cryptos

In the Ethereum-token style, you can create your own Crypto in minutes.

My daughters were quite fed up hearing about dog-themed Cryptos. So they decided to create their own cat-themed Crypto. All they needed to do was customize a “smart contract” and “publish” it to the Ethereum blockchain.

That’s it! In a few minutes, they had created a new Crypto with a supply of 7 billion - roughly one for each human on Earth. True story.

There are some other styles of Cryptos also, but that’s a story for another day.