The roller coaster ride of prices, fraudulent ICOs (Initial Coin Offerings) and the seemingly unbelievable stories about the young Bitcoin millionaires often obscure the long-term opportunities and innovation potential of these new digital currencies. Since in the further course of the digitization of business models, business processes and payment processing must also be automated in real time (or almost real time), cryptocurrencies can become a strategically important component of successful corporate strategies in the digital age.

The market for cryptocurrencies is currently characterized by being highly volatile and growing interest from the government and investment side of institutional players. Therefore, in the context of this article, we would like to define the various forms and types of cryptocurrencies and explain their main and sensible use cases.

What are cryptocurrencies anyway?

Internet currencies, cryptocurrencies or cryptos are decentralized, cryptographically secured networks and means of exchange that are almost always based on a blockchain. They are characterized by the distribution of power in their networks and the ability to send transfers peer-to-peer without a middleman. These currencies cannot be reprinted by central banks or governments at will. You have to dig (mine) and support the maintenance of the structure with your computing power, or they are given as a reward to large nodes (Accounts with a big amount of the coins staked, “Stakeholders”) in the network. Because cryptocurrencies are created or exist digitally and have not (yet) been created by public institutions, national borders do not play a role in transfers, fees or transaction times. Electricity efficiency also differs enormously: While some currencies don't even use a watt-hour for a transaction, a Bitcoin transaction uses more electricity than a single-family house in a week.

Central characteristics of cryptocurrencies:

• Decentralised

• Cryptographic architecture

• Not bound by state borders

• No middleman / peer-to-peer

In contrast to digital payment providers such as PayPal or Stripe, cryptocurrencies do not create a third-party platform to process payments online. There are several decisive differences: While these work by writing a credit to the account holder like a bank and processing the payment transactions centrally, there are always fees for the merchant or buyer. This third party has to be given full trust, which you don’t need to do with cryptocurrencies. Thanks to their architecture, NANO and IOTA, for example, enable free transactions for both sides, as well as protection against account freezes or any central control through their decentralization, which means that transactions are possible directly -without an intermediate party.

The different types of cryptocurrencies

Unlike fiat currencies (dollar, euro, yen), cryptos have various uses and goals, some of which change over time. Above all, they are characterized by different technology and use-related advantages and disadvantages.

Crypto as a platform / multifunctional network

Over the past few years, interest in using the blockchain and ledger as a platform for other functions has developed very dynamically. This is how cryptos like Ethereum and NEO came into being. One of the largest areas of use of these networks are the ICOs (Initial Coin Offerings) and the service as a decentralized “operating system”. We'll get to that later.

Both use so-called GAS as a means of payment for transactions. While you still use your own currency Ethereum to finance transactions on the Ethereum Blockchain, the Blockchain will switch to a Proof of Stake algorithm in the course of this year - a system in which the miners will be superfluous and no new currencies will be mined Process through which the blockchain is so secure and stable based on the computing power. No, in the Proof of Stake algorithm, mathematically determined, newly generated tokens are distributed as a percentage, depending on how many Ethereum tokens are on the respective node wallets. Proof of Stake - in plain words, proof of participation in the network, makes sense because of course you also have the greatest motivation to keep the network secure and stable if you are a big stakeholder. In addition, the newly distributed tokens also act as a kind of dividend that is distributed constantly.

What both have in common, however, are smart contracts. These are agreements that are fed into the network and written down in the ledger, with no possibility of changing or deleting them afterwards. This gives you the opportunity to remove the trust factor. This means that the blockchain does not have any trust in services. In this way, contractual clauses can be partially executed automatically if the circumstances previously agreed upon have been met. More convenience and more security can be achieved in this way.

Another example would be VeChain, a coin with the aim of documenting transport chains and making them available transparently. This is made possible by feeding products into the blockchain. Methods such as NFC, RFID and QR codes make it very easy to check the entire transport chain including temperature, duration and place of origin. Better documentation and more transparency for the companies concerned and also for end users are two of the advantages of this. A network of its own comes in June, with improvements for the special use case. A two-coin solution has been chosen, similar to NEO.

Part 2 will look at how crypto can offer alternatives to other parts of our fiscal system, mainly currency and securities.