With so much going on in the world, it’s easy to wonder if cryptocurrencies feel like too steep a learning curve. Much of the confusion with cryptocurrencies is likely due to the use of words many of us have never heard of.
Some of the basic terms related to cryptocurrencies that you need to know are:
The word cryptocurrency refers to digital or virtual money. It only exists in electronic form and cannot be transported like dollar bills or coins. Think of it this way: “Crypto” refers to data encryption. “Currency” is a medium of exchange (e.g., dollars, pounds, or euros). Just like the typical money we are used to, cryptocurrency can be exchanged for goods and services. A key difference is that cryptocurrency is encrypted to ensure every transaction is secure.
Instead of being managed centrally, cryptocurrency is managed through a global peer-to-peer network. Blockchain refers to the digital ledger used to store all cryptocurrency transactions. According to Blockgeeks, the best way to understand blockchain is to imagine a spreadsheet is duplicated thousands of times and sent to a network of different computers.
All cryptocurrency transactions that take place are continuously shared and reconciled. This means there is no centralized database for a hacker to corrupt and all records are public.
Bitcoin is a digital payment system that enables secure peer-to-peer transactions. Unlike other payment methods (like Venmo or PayPal) that rely on traditional banking systems, Bitcoin is decentralized. This means that any two people located anywhere in the world can exchange digital funds.
It also means that every transaction is recorded on a blockchain (similar to a bank book) and distributed throughout the network of cryptocurrency users. This distribution protects transactions by making each transparent. It also excludes third parties such as banks, companies. and countries. Except for the participants, no one controls the Bitcoin network. And because it is not necessary to buy a full bitcoin, anyone can become part of the network by buying a fraction of a coin.
An address refers to a specific destination on the network to which cryptocurrencies are sent. It’s like a bank account that only holds cryptocurrencies. Each address is used once and aims to provide a unique and highly secure place to store crypto assets. Each address consists of a unique set of alphanumeric characters. Once the cryptocurrency has been sent from one party to the other, the recipient uses that precise set of alphanumeric characters to prove ownership of the cryptocurrency and receive the transaction
Mining is the process used when new bitcoins are circulated. This process requires powerful computers that can solve mathematical puzzles and create a new block on the blockchain. It also involves adding security measures to protect the transaction.
A crypto wallet stores all your cryptocurrency coins. The purpose of a wallet is to protect your digital currency. Security is so tight that if you ever lose or forget your password, you will lose all access to your cryptocurrency. The goal of cryptocurrency, according to Slate, is security without centralization. The only way to ensure this security is to hold individual users accountable for their passwords.
There are two main types of hot and cold crypto wallets. A hot wallet is connected to the internet. Exchanges are convenient, but they’re a lot less secure than a cold wallet. A cold wallet is more like a safe, it is kept offline in a safe place that only you have access to. It is less convenient than a hot wallet when it comes to making purchases or trades. , but infinitely safer.
The most valuable cryptocurrency addresses are called “whales”. A whale is an investor (or group of investors) powerful enough to affect the value of a currency. Let’s say a group of whales get together and decide to sell their Bitcoin at the same time. Of course, the value of the coins would go down immediately after the bulk sale.
The whales could take your winnings and buy more coins at a bargain price. Anyone can become a whale, although whales are usually great hedge and mutual funds. Whether you’re interested in buying cryptocurrency now or you want to learn as much as you can before talking to your broker, knowing the lingo is a good first step.
Altcoins are cryptocurrencies that are not called Bitcoin. Thousands of altcoins have emerged since Bitcoin was launched in 2011. Some coins disrupt markets and shape industry trends, while other coins are financial crime-filled junk. Most of the popular altcoins serve some function in the real world.