Introduction
Cryptocurrencies have gained traction in recent years as an investment option. And just as any previous option that came before it, you need to do your own research carefully to know what you’re getting into.
One of the first things you should do is get to know the beginner’s understanding of crypto terms to plan your investment strategies. In this article, we will explain 20 common crypto terms that everyone should know.
Top 20 most common crypto terms you should know
Altcoins
Altcoins are cryptocurrencies that aren’t Bitcoin, for short. They are different from Bitcoin in various aspects, including technology, governance, transaction speeds, and supply limits.
Ethereum, Ripple, Litecoin, and Bitcoin Cash are examples of well-known altcoins.
Bitcoin
Bitcoin is a decentralized digital currency that was introduced in 2009. It is the first and also the most well-known cryptocurrency, and is powered by a decentralized network of computers that record and verify transactions.
Bitcoin is limited to a maximum supply of 21 million coins, which helps to maintain its value.
Cold Wallet
A hardware wallet, commonly referred to as a cold wallet, is a specialized type of cryptocurrency wallet that securely stores private keys offline. This offers increased protection against theft or hacking, compared to hot wallets that are connected to the internet.
Hot Wallet
As suggested above, a hot wallet refers to another type of cryptocurrency wallet that is connected to the internet, making it convenient to access. It is possible to access hot wallets by a website, smartphone app, or desktop application.
However, due to its connectivity to the internet, hot wallets are more vulnerable to theft and hacking than cold wallets.
Decentralization
Decentralization is the idea of distributing authority and power away from a central organization or authority. In the world of cryptocurrency, decentralization refers to the division of network control among users instead of relying on a single central authority, such as a government or financial organization.
Decentralization offers many advantages to cryptocurrencies, including increased resistance to manipulation, censorship, and corruption. It also promotes inclusivity and transparency in decision-making, making cryptocurrencies a popular choice among those seeking more democratic and open systems.
Decentralized Finance
A system of financial applications that run on a decentralized network, generally propelled by blockchain technology, is referred to as decentralized finance, or DeFi.
DeFi systems work on a peer-to-peer network where users communicate with each other directly through smart contracts, as opposed to traditional financial services that depend on centralized institutions to enable transactions.
Centralized Finance
Centralized finance, or CeFi, refers to traditional financial systems that are controlled and operated by centralized institutions, such as banks, governments, and financial regulators. CeFi systems rely on a network of middlemen, including brokers and clearinghouses, to help parties conduct transactions.
Ethereum
Ethereum is a decentralized, open-source blockchain platform that was created in 2015. It allows developers to build decentralized applications (DApps) on top of its blockchain infrastructure using its programming language, Solidity.
Exchange
A cryptocurrency exchange is an online platform that allows users to buy, sell, and trade cryptocurrencies for other digital assets or fiat currencies. By serving as a middleman between buyers and sellers, cryptocurrency exchanges offer a secure and regulated market place for trading cryptocurrencies.
Cryptocurrency exchanges can be decentralized, where a peer-to-peer network runs without a central authority, or centralized, where a single company controls the exchange and holds user funds.
Fork
A crypto fork occurs when a blockchain network divides into two separate chains, resulting in the creation of a new coin with a shared transaction history.
Forks come in two varieties: hard forks and soft forks. Soft forks are backward compatible with earlier versions of the protocol, but hard forks permanently split the blockchain.
Forks can be divisive and cause price volatility in the affected coins, as well as community disagreement.
Gas
The cost associated with completing a transaction or smart contract on a blockchain network is referred to as crypto gas. The native cryptocurrency of the blockchain network, such as Ether for the Ethereum network, is frequently used to pay for gas.
The amount of gas required for a transaction depends on the complexity of the transaction and the level of network congestion at the time of execution.
Bitcoin Halving
A predetermined event known as “Bitcoin halving” takes place every 210,000 blocks on the Bitcoin blockchain. During this event, the reward for mining a new block is halved, which lowers the quantity of freshly created Bitcoins.
Roughly every four years, a halving occurs in the Bitcoin blockchain. This event has historically led to an increase in the price of bitcoin, as it can boost demand by reducing the supply available in the market.
Initial Coin Offering
A cryptocurrency company will use an initial coin offering (ICO) to raise funds by selling new digital tokens to investors in exchange for other cryptocurrencies like Bitcoin or Ether.
ICOs were popular during the 2017 cryptocurrency surge and were used to support a range of businesses, including social networks and blockchain platforms.
Market Capitalization
The market capitalization of the cryptocurrency market, commonly referred to as market cap, represents the total value of all cryptocurrencies currently in circulation. It is determined by dividing a cryptocurrency’s market price by its entire supply.
Market capitalization is an essential metric that investors and analysts should track as it can shed light on the overall health and future potential of the cryptocurrency market.
Mining
Crypto mining is the process of approving transactions and adding them to a blockchain by using specialized machines to perform complex mathematical calculations.
Miners are paid with newly created cryptocurrency for their efforts.
In several blockchain networks, mining is crucial as it ensures the security and integrity of the network. However, mining requires significant computing and energy resources, leading to concerns about its potential impact on the environment.
Public key & Private key
Two cryptographic keys—the crypto public key and the crypto private key—are used to safeguard digital transactions and guarantee the confidentiality and veracity of the parties involved.
A private key is a secret code used to access and spend the cryptocurrency stored in the corresponding public address, whereas a public key is an individual identification used to accept cryptocurrency payments.
Smart Contract
Self-executing contracts, or “smart contracts,” use computer code to carry out their terms.
They are transparent, decentralized, and immutable, and they are implemented on blockchain networks. From straightforward payments to sophisticated financial instruments, smart contracts may automate many different sorts of transactions and do away with the need for middlemen.
Stablecoin
Stablecoins are digital currencies that are typically pegged to fiat money, offering a consistent value that remains stable over time.
Unlike other cryptocurrencies, stablecoins have lower volatility, making them a popular choice for transactions and storing value. By bridging the gap between traditional financial institutions and cryptocurrencies, stablecoins enable users to transfer wealth without being subjected to high levels of volatility.
Token
Crypto tokens are digital assets that are issued on a blockchain and stand in for a specific good or service. They are frequently used in ICOs to obtain access to particular services inside the blockchain ecosystem or to generate funds to fund new cryptocurrency ventures.
Whale
The term “crypto whale” is used to refer to an investor or group of investors who own a significant amount of cryptocurrency.
Because of their huge holdings, these investors are frequently referred to as “whales,” who have the power to affect the price of a particular cryptocurrency. When they acquire or sell their holdings, crypto whales can create volatility in the cryptocurrency market.
Final thoughts
As with all types of investment methods, you should always do your own research carefully when deciding to invest in cryptocurrency. One of the first steps that need to be done is knowing all the basic crypto-related terms in order to have a better understanding of the thriving sector.
