Investing in Cryptocurrency can be overwhelming. It is quite different from traditional stock market investments and, in many ways, represents a completely different digital financial system. So having to know basic terms is necessary. We will be explaining 30 important and basic cryptocurrency terms in brief to help you get a headstart in the world of cryptocurrency.
Why is it important to know Cryptocurrency terms?
Cryptocurrency and NFTs are very attractive investment options as of now. But it is a completely different system of commerce, and certain terms like Blockchain, Decentralization, and Gas Fee will pop up now and then. So knowing these cryptocurrency terms will help you make calculated and thought-out decisions to get good returns on your investments.
Moreover, it is quite easy to lose your money in this space if you are not sure what you are doing, and due to the decentralized nature of this system, recovery is next to impossible. On top of that, there are a lot of scammers and hackers that will try to exploit you, so knowing certain terminology might also end up saving you from scams.
Cryptocurrency Terms and Meanings
Now that we understand the importance of knowing these terms let us dive into the list of cryptocurrency terms and meanings:
Altcoins or Alternate Coins refer to cryptocurrencies other than Bitcoin. Bitcoin is not the only cryptocurrency in the market and since its inception, several different cryptocurrencies have come out. This includes Ethereum. It is advised to stick with popular mainstream coins instead of Altcoins.
Bitcoin is the first and most popular and valuable cryptocurrency in the world. It was created by Satoshi Nakamoto and launched on 3rd January 2009. It is built on its own Bitcoin Blockchain and it has a limited supply of 21 Million. The sub-currency of Bitcoin is called Satoshi.
To learn more about Bitcoin in detail, check out this article on 11 Questions About Bitcoin In India Answered.
3. Blocks and Blockchain
A Block is an encrypted record of data or transactions of buying and selling of cryptocurrency. It can only hold a certain amount of data, so once the limit is reached, another block is added, creating a chain of Blocks. This is called a Blockchain.
Blockchain cannot be altered, making it a secure record and information database. The records are public and stored on several different computers around the world.
Burning is the process of sending cryptocurrencies to an unknown wallet address that can only receive funds. This process is usually done to create an artificial scarcity of the cryptocurrency, resulting in lesser coins in circulation. This helps raise the value of the cryptocurrency.
Cryptocurrency, also known as Crypto, is a digital form of currency and uses cryptography to secure transactions and their details. Its value is generally not backed by any currency, which is why it is so volatile. It is a decentralized currency native to a Blockchain network and is also referred to as Coin.
6. Crypto Wallet
Crypto Wallet, also called Hot Wallet, is a digital online wallet where you can store your cryptocurrency. These Wallets are a convenient place to store, access, receive, and transfer your cryptocurrencies. They come with a public address that is used to link your wallet with Dapps and other decentralized services and make payments via cryptocurrency easier.
DAO stands for Decentralized Autonomous Organization. It means an organization where the decisions related to the project, Treasury, or Blockchain are made by voting. To participate in the voting process, you must own a Governance token which is a cryptocurrency specific to that blockchain that gives voting rights.
Decentralization is the system where the power is distributed instead of having a central authority. Blockchains are decentralized as they require approval from most distributed nodes, making them more secure and tamper-proof.
Hacking a central server might give you access to a lot of information but hacking a decentralized system will not be effective, as one would have to hack more than 50% of the nodes to make changes.
9. Decentralized Finance (DeFi)
DeFi or Decentralized Finance is a term coined for traditional financial activities that are performed over a decentralized network. There is no middleman like Banks or Governments, and it uses blockchain technology and smart contracts to verify and secure transactions.
10. Decentralized Apps (Dapps)
Similar to DeFi, Decentralized Apps, also known as Dapps, are applications designed to work on a blockchain network. These work without a middle man often using Smart contracts. They are usually open-sourced, so anyone can look at the code, and their decentralized nature helps keep every user's data secure. A large number of Dapps are based on the Ethereum Blockchain.
Ethereum is a blockchain network created by Vitalik Buterin in 2015. Its native coin Ether is the second-largest cryptocurrency by market capitalization after Bitcoin. It was an alternative to Bitcoin and added Smart contracts to its blockchain, which is why Ethereum is home to several Dapps and DeFi platforms. The sub-currency of Ether is called Gwei.
Exchanges are digital marketplaces where you can trade or buy cryptocurrencies. These often require identification details to set up an account. On the other hand, Decentralized exchanges do not require any identification to set up. They use peer-to-peer transactions that circumvent any centralized authority.
Decentralized exchanges are a great option if you want to trade coins and want fewer fees. Check out this article on decentralized exchanges with pros and cons.
13. Fiat Currency
Fiat currency is your everyday cash and other currencies whose value is backed by Governments.
14. Gas Fee
Gas fees can also be considered transaction fees. This is the amount you must pay whenever you make a transaction related to cryptocurrencies, mainly Ethereum. The higher the gas fee, the faster your transaction will process, but sometimes it is better to pay less and wait for a while.
If you are also worried about high gas fees, click on the link to find out how to save Gas fees.
14. Hardware Wallet
A Wallet is where you can store cryptocurrency, typically online, since cryptocurrency is a digital currency. A Hardware wallet allows you securely store your wallet credentials and data offline. This keeps your Crypto secure from scammers and potential hacks. It looks like a small USB.
It is advised to store it securely, as losing it will also mean losing all your crypto funds. It is also called a Cold wallet. We have already covered the best hardware wallets to store cryptocurrency offline.
HODL is a misspelling of the word “HOLD.” It is a strategy where people hold on to their cryptocurrency in hopes that its value will increase and they will earn a profit on their investment. It is also now considered an acronym for Hold On for Dear Life.
16. Initial Coin Offering (ICO)
Like the stock market IPO, ICO refers to Initial Coin Offering, where new cryptocurrency-related projects can secure funding. A way that funds are raised for a new cryptocurrency project.
17. Liquidity Pool
A liquidity Pool is a practice of providing liquidity to an exchange. You can lend two different types of cryptocurrencies in equal value to exchange. This makes you a liquidity provider. The exchange uses the funds in the funds to pay transaction fees and to maintain the price. In return, the exchange distributes the fees collected to the liquidity providers.
18. Market Capitalization
Market capitalization is the sum value of all coins coined and in circulation so far. To calculate the market capitalization of any crypto, multiply the current number of coins by the current value of the coins.
Memecoins are tokens that were created just as a joke. They provide no utility or purpose, and their value is extremely volatile, yet they have significance in the community. Dogecoin is a popular example of a Memecoin.
Related Article | What is Dogecoin and Why is Everyone Talking About It
Metamask is a popular browser-based crypto wallet. It is useful for Ethereum-based transactions but has also included other blockchains. You can also use it to sign into Dapps and store NFTs.
Mining is the process of verifying transactions and adding blocks to the blockchain. The people who mine cryptocurrency are called Miners. This process requires a lot of computing power as computers worldwide compete in a race to verify a transaction first.
The miners are then awarded cryptocurrency, which is how new cryptocurrency is added to the circulation.
Minting is a term generally used for NFTs. It means creating and verifying the information and adding it to the blockchain. This requires generally requires a Gas fee.
23. Nodes and Peer to Peer
Nodes refer to computer systems that are connected to a blockchain. When these computers are connected directly without a third party, it is referred to as Peer to Peer.
24. NFT (Non-Fungible Token)
Non-Fungible Tokens, commonly called NFTs are among the most important cryptocurrency terms. These are tokens within a blockchain that cannot be reproduced. They can be used to certify the ownership of virtual assets and even real-world assets. These days they refer to digital collectible items like art, music, and trading cards. And you have to buy them from a separate NFT marketplace like OpenSea.
25. Pump and Dump
Pump and dump are fraudulent schemes where a lot of excitement and hype is built over a new cryptocurrency or product. This leads to many people buying it increases the value of the product. The creators hold the majority of coins that they sell off when the value increases. This results in a massive downfall in the value of that cryptocurrency.
26. Public Key
Public Key is the address of your crypto wallet that is visible to others, and they can use it to send you money. It is a long string of characters and numbers, and it's completely safe to share it.
27. Private Key
The Private key is the 12-word phrase that you get when setting up your crypto wallet. This needs to be entered in the order it was shown to you and is the only way to access and import your private crypto wallet. You need to store it safely and in a place where no one else except you can find it.
If you lose it then it is next to impossible to recover your funds stored in that wallet. It is also called Seed Phrase.
28. Proof Of Work
Proof of Work is a method to add blocks to a blockchain. It is used to award miners for verifying a transaction. Miners race to verify a transaction and add it to a block by solving a complicated cryptographic puzzle. The miner that comest first receives the reward while others are left empty-handed.
This is inefficient as it wastes a lot of energy and isn't cost-effective. This is why Ethereum is moving toward the Proof of Stake method.
29. Proof Of Stake
30. Rug Pull
A malicious and fraudulent practice where the creator of the cryptocurrency or NFT project vanishes after taking all the funds. This is a common scam practice in the crypto space, and one of the recent examples is the Squid Game coin scam.
31. Smart Contracts
Smart contracts are a program that will execute themselves when a suggested condition is met. They help eliminate the middleman in the process by automatically executing or recording any data or transaction when a certain condition occurs that is determined according to the terms of the contract.
Staking refers to locking away your coins for a certain period in a crypto exchange to earn interest-based rewards. Think of it like a fixed deposit where you lock away your funds for a set period and earn interest on them.
Other than trading, there are other passive methods to earn from cryptocurrency and staking is one of them.
Stablecoins are cryptocurrencies whose value is backed or pegged by cash or a non-digital currency, generally US Dollar. Some examples of Stablecoins are USDC, Tether, and BUSD. Their value is comparatively less volatile, unlike other cryptocurrencies.
Tokens are one of the most important cryptocurrency terms, as many people confuse them with coins. But tokens and coins are two different things. While coins can be considered the primary currency of that blockchain. Tokens are assets on the blockchain that may have a utility or purpose other than having a value. Like a governance token used for voting.
35. Vanity Address
Vanity Addresses or Domain NFTs are personalized for wallet addresses that can be purchased from NFTs from marketplaces like Unstoppable and Ethereum Name Service. This makes sending funds to a wallet address easier and can also be used as a domain name for a website, like anshumanjain.nft.
The world of cryptocurrency has come far and beyond where it started back in 2009 and developed its financial system. So knowing these cryptocurrency terms and meanings is crucial to understand what you are investing in, and what aspects of certain cryptocurrency makes them stand out from others and will make them profitable in the future. I hope this article was able to help you understand these cryptocurrency terms and meanings.
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