What Are Cryptocurrencies?
---------------------------------

Cryptocurrencies are digital forms or assets that work on a decentralized network. This means that they do not rely on financial institutions, the government, or even banks to function. These assets can be created on a blockchain system, which acts as an effective distributed ledger. This ledger keeps a record and authenticates every particular transaction over a worldwide network of computers, making them immune to any kind of censoring, forgery, or modification, totally unlike the traditional financial sector.

So, what are cryptocurrencies? Cryptos are basically programmable, transferable units of value. Cryptocurrencies can be simply a method of payment, a replacement for cash, for example. Some cryptocurrencies are for developing decentralized applications, managing a group of people on a social network, or for engaging in "financial protocols which require no middleman.The fact that they are not associated with any particular organization or country" allows them to move quickly across international borders and function 24 hours a day, 7 days a week, 365 days a year.

The notion of cryptocurrency came into focus with the launch of the first digital currency or cryptocurrency named [Bitcoin](https://exolix.com/currencies/btc){:target="_blank" rel="dofollow"} in 2009. Since then, the scene has changed with the rise of various digital currencies with varied uses in the virtual world. However, each and every cryptocurrency has an essential common factor, which is "decentralization.

The Top 5 Types of Cryptocurrency
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There are various types of cryptocurrencies that have been developed in order to serve different uses and are based on different models and technologies. Not all cryptocurrencies are the same and in fact are quite different from each other in both functionality and purpose. Knowing about them is important for anyone considering entering the crypto market for transactions such as investments or simply to learn about how crypto works.

The crypto market has developed at such a rapid pace that it now encompasses several asset types. There are cryptocurrencies that are meant for practical uses such as transactions, as well as those that are meant for running apps in a decentralized manner, or for stabilization or governing blockchain networks. All of them are meant for specific purposes and are contributing significantly to the use of blockchain technology worldwide.

The most popular types of cryptocurrency follows:

-   Payment Cryptocurrencies

-   Smart Contract Platforms

-   Stablecoins

-   Governance Tokens

-   Utility Tokens

These cryptocurrency categories are the building blocks of the current crypto landscape. Further in this writing, we will explore each of them in relation to how they operate, the significance of their existence, and their relevance to the future of digital money. Payment Cryptocurrencies

Payment Cryptocurrencies
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Payment Cryptocurrencies are the oldest types of crypto and most well-known form of digital money. They are the brainchild of those who aimed to create peer-to-peer digital money that enables one to send money all around the world without the need to resort to banks, governments, and traditional payment systems in place. The significance of these types of crypto lies in their ability to provide fast, reliable, and world-class money transfer in the shortest time possible.

The idea of payment types of cryptocurrencies is not very complicated: they try to replace or improve classical money by offering an e-currency that works in a blockchain network. That is why they are so interesting for use in paying, money transfer, and as an alternative store of value.

**Examples: [Bitcoin (BTC)](https://exolix.com/currencies/btc){:target="_blank" rel="dofollow"}, [Litecoin (LTC)](https://exolix.com/currencies/ltc){:target="_blank" rel="dofollow"}, [Bitcoin Cash (BCH)](https://exolix.com/currencies/bch){:target="_blank" rel="dofollow"}**

### Why Payment Cryptocurrencies Matter

The payment types of cryptocurrencies are important because they reveal the potential of the blockchain technology to transcend the financial constraints. The payment types of crypto coins ensure speed in transactions, lower transaction costs, and universal access. Payment currencies also offer an additional level of financial security to people and, hence, play a pivotal role in the financial and economic architectures.

Smart Contract Platforms
------------------------

Smart contract platforms are a major type of cryptocurrency because they provide appropriate technology infrastructure that can enable and facilitate dApps, protocols, and blockchain networks. This is unlike other payment systems and/or simple cryptocurrency platforms that have been designed for creating digital money and can process only simple transactions and cannot conduct any programmable and automatic transactions that occur when a set of conditions is met.

These platforms brought about a new age within the world of blockchain technology, allowing developers to construct decentralized exchanges, loan programs, NFT marketplaces, gaming platforms, and a never-ending list of digital services without the need of intermediaries. The versatility of these platforms has made them the lifeblood of the Web3 economy.

Examples: [Ethereum (ETH)](https://exolix.com/currencies/eth){:target="_blank" rel="dofollow"}, [Solana (SOL)](https://exolix.com/currencies/sol){:target="_blank" rel="dofollow"}, [Cardano (ADA)](https://exolix.com/currencies/ada){:target="_blank" rel="dofollow"}

### Why Smart Contract Platforms Matter

The reason why smart contract networks are so critical for the future development of blockchain technology at the current stage of its development is that these networks allow it to move ahead from a mere value transfer platform and towards realizing its complete potential as digital infrastructure. The reason for this is that smart contracts have the ability to address issues associated with trust, logic, and execution with respect to interaction with digital infrastructure.

Stablecoins
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Stablecoins are a type of cryptocurrency that has to be stable and predictable in its price and is usually pegged to another stable asset that has a fixed price in the market. This could be in US dollars or euros or some commodities like gold. Stablecoins are different from other cryptocurrencies in that they are stable and do not fluctuate in price.

Stablecoins have an important function within the overall crypto market. These different types of cryptocurrency facilitate fast money transfer from one platform to another, help in retaining value despite market fluctuations, as well as use decentralized financial services without involving banks.

**Examples: [Tether (USDT)](https://exolix.com/currencies/usdt){:target="_blank" rel="dofollow"}, [USD Coin (USDC)](https://exolix.com/currencies/usdc){:target="_blank" rel="dofollow"}, [DAI (DAI)](https://exolix.com/currencies/dai){:target="_blank" rel="dofollow"}**

### What Makes Stablecoins Important

The reason stablecoins are important for different types of cryptocurrency is the fact that they are stable in a market known to go through rapid changes in terms of prices. Stablecoins are useful in digital payments, international payments, and even as a means of holding funds through blockchain technology because of their stability.

### How They Maintain Stability

With the exception of peer-to-peer stablecoins, all other stablecoins are backed either by a reserve or an algorithm that strives to fix its price as close to the desired value. However, in both scenarios, the goal remains the same, that is to provide a stable digital currency that represents real-world value.

Governance Tokens
-----------------

Governance tokens represent a type of cryptocurrency that grants the holder voting rights regarding the governance of the decentralized platform. The governance token helps stakeholders in voting on how the decentralized system can grow. This provides the vast majority of people an interest in the growth of the decentralized system.

**Examples: [Uniswap (UNI)](https://exolix.com/currencies/uni){:target="_blank" rel="dofollow"}, [Aave (AAVE)](https://exolix.com/currencies/aave){:target="_blank" rel="dofollow"}, [Maker (MKR)](https://exolix.com/currencies/mkr){:target="_blank" rel="dofollow"}**

### Why Governance Tokens Matter

The governance cryptocurrency allows a more democratic digital world that is governed by users on how it is changing or developing. No single organization or person is responsible for decisions, with decisions spread among cryptocurrency holders who take part in decision-making.

Two typical characteristics of governance tokens are:

-   On-chain voting, in which decisions are made by token holders using smart contracts

-   Protocol ownership, to enable communities rather than corporations to shape growth

This interplay between decentralization and organized decision-making represents what makes governance tokens such an essential category in Web3.

Utility Tokens
--------------

Utility tokens represent the cryptocurrency categories that is used most in the world of cryptocurrencies. The role of such tokens is not dealing with traditional currencies but is related to getting access to specific products, services, or applications offered by a particular blockchain platform. Whenever people need services, they require these tokens.

Unlike payment cryptocurrencies, where the intention is the movement of value, utility tokens enable the economics of a platform. These utility tokens can also see their value affected by how useful the system has actually become, given that more people will require this token in order to access the system.

**Examples: [Binance Coin (BNB)](https://exolix.com/currencies/bnb){:target="_blank" rel="dofollow"}, [Chainlink (LINK)](https://exolix.com/currencies/link){:target="_blank" rel="dofollow"}, [Filecoin (FIL)](https://exolix.com/currencies/fil){:target="_blank" rel="dofollow"}**

Utility tokens have multifarious uses within a blockchain environment. Some of these are:

-   Access to platform services, such as purchasing resources, engaging with applications, and/or pay-for protocol costs

-   Engaging in network activities such as staking, reward reception, and premium content access

Being directly connected to real functionality, utility tokens have an important role in ensuring the smooth functioning of decentralized platforms and encouraging participation in them.

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Types of Cryptocurrency: including payment coins, stablecoins, utility tokens, and more. Learn how each type works and why it matters.

The Top 5 Types of Cryptocurrency

Not all cryptocurrencies are the same and in fact are quite different from each other in both functionality and purpose. Knowing about them is important for anyone considering entering the crypto market for transactions such as investments or simply to learn about how crypto works.

[Arbitrum (ARB)](https://exolix.com/currencies/arb) is a Layer 2 scaling solution that has been created on the Ethereum network. It has been designed to ensure fast transactions and small gas prices. However, it emerged as a response to the popularity that has been experienced by Ethereum. Now, some of the challenges faced by most users on the network provided by Ethereum are congestion and slowness in transactions. These challenges have been addressed through 'Optimistic Rollup' technology offered by ARB.

Numerous newcomers have sought to know or ask the question of what is Arbitrum, what is the meaning of Arbitrum crypto, as well as the meaning of Arbitrum. To provide a brief overview of the meaning of Arbitrum, the meaning of Arbitrum is defined as the procedure or process through which the transactions are processed off the chain but are eventually finalized on Ethereum. The chief token of this process and the anwer on the question what is Arbitrum is a native token ARB.

[![swap-arb.png](https://blog.exolix.com/uploads/swap_arb_7fb87d1166.png)](https://exolix.com/currencies/arb){:target="_blank" rel="dofollow"}

Among the most popular layer 2 scaling solutions that have been broadly accepted is Arbitrum because it offers the following:

-   Much lower gas fees

-   Faster transaction processing

-   Ethereum full smart contracts compatibility

-   A strong and healthy DeFi and dApp ecosystem

How Arbitrum Works
------------------

Arbitrum is a Layer 2 scaling solution that makes Ethereum faster, cheaper, and more efficient with no sacrifice in security. To begin the discussion on Arbitrum, one needs to know the challenge which Arbitrum solves. Ethereum is quite secure and decentralized but faces issues with network congestion and high gas costs during peak times. This gets resolved with the help of Arbitrum.

### The Power of Roll-ups

They have implemented a technology called Optimistic Rollups. What this means is that multiple transactions are packed or rolled up into a single transaction, then posted on the Ethereum chain. The result is less work being done on the main chain.

This is how the whole process works:

-   Transactions are sent on Arbitrum and not on Ethereum.

-   These are transactions handled by the Arbitrum system.

-   A condensed summary of all the transactions is sent to Ethereum.

-   If nobody calls into question a certain batch, after a specified period of time, that batch is considered finalized.

Therefore, this technology empowers Arbitrum with the full power of security provided by the Ethereum network.

-   Off-Chain Execution, On-Chain

-   The heart of the Arbitrum network architecture is its two-layer structure:

-   Execution Layer: It has the ability to process smart contracts and transactions quickly.

-   Settlement Layer: It relies on the Ethereum platform to validate the results and ensure correctness.

Thanks to this hybrid design, developers are able to simply deploy their Ethereum contracts onto the Arbitrum platform with little to no changes.

### Arbitrum Virtual Machine (AVM

One of the important things brought by Arbitrum is the idea of the Arbitrum Virtual Machine, which works in a similar fashion to the Ethereum Virtual Machine, or EVM, but is optimized for L2 execution. This makes it easy for devs to move their dApps to their network, while also taking advantage of faster execution times and lower costs.

### Fraud-Proof Security

Arbitrum operates under the assumption that a transaction is valid until it can be proven otherwise, hence the name 'optimistic Turing universal virtual machine. Anyone can dispute a wrong answer by submitting a fraud proof. This guarantees that

-   High security

-   Creditable verification

Protection against malicious actors This provides a guarantee that even though a transaction occurs in an off-chain manner, the Ethereum environment always enforces the correctness of the

Arbitrum Economics: Supply, Mining, and Market Dynamics
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However, the economics underlying the system differ vastly from traditional Proof of Work blockchains. Thus, one has to examine the economics underlying coin distribution, incentivizing the network, and the overall markets. However, note that the coin is non-mineable and is actually the name for layer two scaling on Ethereum. Thus, the dynamics underlying this asset could be attributed to governance dynamics, overall development on the particular network, and demand for scaling solutions.

### ARB Token Supply

The native token, ARB, has a capped total supply of 10 billion, distributed under different categories as follows. They proposed an initiative to improve the sustainability of the

-   Investors & Team

-   Airdrops in the Community

-   Ecosystem development

Ecosystem development Tokens vest at a steady pace through a long-term vesting schedule designed not to disrupt token supply in the system. Further, there is a token cap set at a

### Validation Instead Mining

As opposed to other platforms such as Bitcoin and Ethereum (prior to the Merge event), Arbitrum does not employ mining. It depends on the cooperation of the Ethereum validators and an independent Arbitrum fraud proof. Instead of ARB being distributed to miners, it serves the primary purpose of:

-   A governance token for protocol-level decision-making

-   An instrument for ecosystem incentives

-   A system of providing funds for upgrading and developments«

The total supply of its token, ARB, is fixed at a maximum of 10 billion tokens. These ARBs are distributed under different categories as follows:

-   The Arbitrum DAO and Treasury

-   Investors & Team

-   Airdrop Communities

-   Ecosystem Development

Under the vesting schedule, which gives the token in a balanced manner, the tokens vest over a longer period of time.

### Market Dynamics

The value of ARB is affected by:

-   Total Layer 2 Scaling Solution Adoption

-   Gas Prices in Ethereum: Higher Layer 1 Prices Tend to Drive Layer 2 Volume

-   The number of decentralized applications (dApps) on the Arbitrum network

-   Marketplace sentiment with regards to Governance Tokens

Cross-chain liquidity growth Despite Arbitrum's continued leadership within the TVL (Total Value Locked) metrics for the L2 model, the future for the associated token rests with the development of the ecosystem and continued market appetite for scalable, affordable Ethereum transactions.

How to Buy, Store, and Use Arbitrum (ARB)
-----------------------------------------

It's easily available for buying, holding, and generally interacting with. Since ARB is a well-established Layer 2 token with wide exchange availability, investor and user onboarding can be very minimal.

### How to Buy Arbitrum (ARB)

[![swap-arb.png](https://blog.exolix.com/uploads/swap_arb_7fb87d1166.png)](https://exolix.com/currencies/arb){:target="_blank" rel="dofollow"}

You can acquire ARB through several sales channels, depending on your preference for a method and location. Most users receive ARB by:

-   Buying it on centralized exchanges.

-   Purchasing other cryptocurrencies in exchange for ARB on decentralized exchanges.

-   Using fiat on-ramp services that support the Arbitrum network

Being one of the leading Layer 2 assets, liquidity is commonly strong, which ensures efficient trading and competitive rates.

### How to Store Arbitrum (ARB)

ARB token will be compatible with any wallet that supports Ethereum, as it follows the standard ERC-20. Thus, the following wallets are compatible for storing ARB:

-   Hardware Wallets - Most secure for keeping large sums

-   Software Wallets

-   Mobile/Desktop Wallets for Daily Use

-   Browser wallets: Examples include MetaMask, especially helpful for dApps on Arbitrum. 

When it comes to the ARB token, users have to make sure that they add the correct network for Arbitrum One Network in order not to incur higher gas costs or engage with legacy apps.

### How to Use Arbitrum (ARB)

According to the research, ARB has several functions on the Arbitrum network:

-   Layer 2 Transactions: The users can pay for particular ecosystem actions within the Arbitrum Network.

-   User Engagement in DeFi: ARB is being used vastly in liquidity pools, staking, and yield

-   dApps Availability: Several dApps developed on the Arbitrum network either use ARB directly or provide rewards for using it. It is worth considering that even if the market performance for one dApp does not look

This is due to the significantly minimized transaction fees on Arbitrum compared to Ethereum. This means that those using ARB tokens experience faster and cheaper transactions on the network.

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Arbitrum is a Layer 2 scaling solution that has been created on the Ethereum network. It has been designed to ensure fast transactions and small gas prices.

What is Arbitrum (ARB)?

Arbitrum is a Layer 2 scaling solution that makes Ethereum faster, cheaper, and more efficient with no sacrifice in security. 

Authors Page

Bradley Pierce

Crypto Niche Expert

Articles: 578

The Top 5 Types of Cryptocurrency

What is Arbitrum (ARB)?

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