Top 10 Cryptocurrency terms you need to know before investing so that you know what you are getting yourself into. No time to waste. Here we go:
1. Blockchain
A blockchain is a digital ledger composed of all the transactions ever made in a particular cryptocurrency. Actually, a blockchain can be used beyond storing crypto transactions. It stores data or information together in chunks known as ‘blocks’ and these blocks are then chained together to form a chain; hence the name blockchain.
Blocks have a certain limit or capacity to how much data can be stored in them. When new data comes, a new block is created and data is stored in it. Once the block is filled, it is chained with the previous block. All the data that follow the ones in the last block are then added to a newly formed block, which is also chained to the previous block once it's full.
Each block is given a certain hash and timestamp of when it was added to the chain. When blocks are filled, the data in it is irreversible and cannot be modified unless people on the network reach a majority agreement to do so. All the users/computers known as ‘nodes’ in the blockchain together handle and approve of any transactions and changes. Since each node has its own copy of the data in the blockchain, it is easier to cross-check references when someone maliciously tries to tamper with the data in the node.
Blockchains can be used as a transparent and secure way to reduce voter fraud, ensuring voters’ privacy and effectively reducing the cost of the election. It can also allow secure online voting. It can be adapted to keep government records, medical records in hospitals to land registration records in real estate.
2. Altcoin
You must have heard about Bitcoin if you are here. An altcoin is any digital currency that’s not Bitcoin. There are thousands of cryptocurrencies, with new ones being added all the time. A few examples are Ether, Binance coin, Tether, Solana, Dogecoin, etc.
3. Fiat
Fiat currency is government-issued currency. For eg: the U.S. Dollar. Fiat is not backed by any commodity (like gold) which means that the value of fiat relies solely on the government it is issued by. If the government crumbles, so does your fiat.
On the other hand, cryptocurrency is virtual money. How much each crypto token is worth is based on the current market value.
4. Defi
DeFi or Decentralized Finance is a term for a variety of financial services and products in cryptocurrency. Currently, we have centralized finance (CeFi). Our financial system is regulated and controlled by our governments, banks, and other financial institutions. We have to trust banks and the government to keep our money safe, let us deposit, withdraw and invest it and use it without any restrictions. With DeFi, we can put technology and code at the forefront in the financial services industry.
DeFi is a system where all the financial services (buying, selling, lending, borrowing, investing, trading money, and more) are available on a blockchain. This makes them open and accessible for anyone to use on a more peer-to-peer network instead of going through third-party systems like banks or financial institutions.
Benefits of using DeFis:
- No personal information or proof of identity is required to use DeFi services. You need an internet connection and a digital wallet for a crypto asset.
- It is truly decentralized and hence offers censorship resistance.
- Faster, safer, and immutable transactions because of the use of blockchain as the underlying infrastructure.
- Your money stays safe with you as long as the private keys of your wallet are not compromised.
- Interest generation and determination of the value of an asset are done by the code. So, it is more credible and provides no place for human error.
To transact in crypto, you need two things: public and private keys. Your public key is what you send to people when you want to transact in crypto. It is similar to your bank account number or your email address. A public key is a long string of random numbers that you can share with people. Sharing it doesn’t compromise the security of your wallet.
6. Private Key
A private key, on the other hand, should always be kept private. A private key allows you to access the actual cryptocurrency on the blockchain. So, if someone has access to your private keys, it's as good as having access to the crypto in your wallet. This key is necessary to verify transactions when selling or withdrawing your crypto.
7. Exchange
An exchange is an online service where you buy cryptocurrency. Think of it as the middleman between fiat and crypto. You can exchange your fiat for crypto or vice versa for a small transaction fee. You can also store your crypto on the exchange. It will hold your private and public keys for you.
Or you can use a wallet.
8. Wallet
Crypto wallets can be a piece of software (hot storage wallet); a mobile or desktop app, or a physical device (cold storage wallet). But the function is the same. Crypto wallets are designed to allow you to securely access any cryptocurrency you own. It is important to note that a crypto wallet does not hold any actual cryptocurrency. Instead, it holds the public and private key information needed to carry out crypto transactions. The cryptocurrency itself is stored on a blockchain, a type of digital ledger that serves as the basis of how decentralized cryptocurrencies work.
9. NFT
Think fungible as replaceable.
Fungible is something that can be replaced with another thing exactly like it. Anything fungible is mutually interchangeable with its likes.
For eg: a dollar note can be exchanged for another dollar note and you’d still have the same thing. One piece of clothing can be exchanged for another piece exactly like it, and you’d still have the same thing.
Unlike that, non-fungible is something that cannot be replaced with another thing exactly like it. An NFT is a collectable digital asset; could be anything, an image, a gif, a song, a video, in-game items and weirdly even a tweet.
How do people ‘buy’ a tweet? Simple. They are buying a special, digital token - an NFT - that proves your ownership over it. There can exist copies on the internet for free, but you OWN it. Others don’t and that is exactly the point.
Most NFTs live on the Ethereum blockchain, Ethereum has smart contracts and token standards that make NFTs possible. Unlike Ether, which is the native currency of Ethereum and is fungible, NFTs store extra information about artwork and are non-fungible.
An NFT holds value as a form of digital currency (tokens) and as a form of art or culture. In our internet-y language, as a flex. Not everyone can say they ‘own’ the very first tweet ever. It is the pop-culture phenomena, the hype that makes them so valuable.
10. Mining
Mining is the process of verifying a new transaction on a blockchain. Computers mine crypto coins by solving complex mathematical problems. Then the miner is rewarded crypto for their work. This is how the log of transactions between users is maintained on the blockchain.
Now that you know a little more about the crypto-verse, consider reading our blogs for in-depth knowledge. Or buy crypto merch from Forget Juice to induct in the world. It’s a must. Happy investing!