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By now everyone’s heard of Bitcoin. It introduced the world to blockchain or distributed ledger technology and as a crypto asset, it is the center of the universe. But bitcoin is hardly alone. In fact, an entire galaxy of crypto assets has been created to support a wide range of use cases and applications focused on verticals such as identity management, data storage, gaming, banking, lending, social media and streaming.
Because Bitcoin started the industry, virtually every other crypto asset is called an alt-coin. Alt-coins can be categorized in a few different ways.
Protocol tokens, also referred to as Level-1 or base layer tokens, are native to a blockchain and are necessary for the operation of a given platform. Bitcoin for example, is a protocol token, not only because it is what users send and receive over the network, but because it is also how miners (payment processors) get compensated for supplying their computer power.
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Another protocol token, Ethereum is by far the most prominent and popular alt-coin. It has the second-largest market capitalization of $513 billion, behind only bitcoin ($1.04 trillion). It was created in 2015 by Vitalik Buterin, who was looking to build a blockchain platform that could run and execute any type of software program or application. Bitcoin is relatively rigid in its composition, which is by design, as more functionality offered by a blockchain can also create additional security vulnerabilities.
Ethereum operates in a similar manner to bitcoin, where miners expend substantial amounts of computer power to add transactions to the network.
That said, there are many other prominent blockchains with their own protocol tokens, with some of the largest being Solana, Algorand, Cardano, Binance Smart Chain, Avalanche, EOS and Polkadot.
If the base layer of a blockchain is the operating system, then decentralized applications (dapps) are the programs that run on top of them. Many of these applications have their own tokens (known as dapp tokens) that are also freely traded on many exchanges. Dapp tokens first came to prominence in 2017 and 2018 during the initial coin offering (ICO) craze, when many founders raised millions—sometimes billions of dollars——through token sales to fund product development. It is worth noting that the vast majority of these ICO projects failed and the value of their assets went to zero, which was a …….