Cryptocurrency is the newest investment rage across the world, which is very popular with
the younger people.
Skyrocketing prices of cryptocurrencies are surely fascinating for new investors, but
they should be aware of the risk before investing.
Before investing in cryptocurrencies, the best place to start would be to get familiarize
with some of the basic terminology and jargons that many of us have never heard but it may
make it easier to understand how exactly cryptocurrency works.
Here are some of the most commonly used Cryptocurrency-related terms for you to get better understanding:
Cryptocurrency
Cryptocurrency refers to digital or intangible money that exists solely in electronic form
and it is encrypted to ensure that each transaction is secure.
These transactions are recorded in a public ledger and the digital currency is stored
in a digital wallet.
It can’t be carried around like other fiat currencies, but can be used to buy and sell
things.
The word “crypto” refers to data encryption and “currency” is a medium of exchange.
It works on a decentralised network based on blockchain technology.
Some of the popular cryptocurrencies are Bitcoins, Ethereum, Binance coin, Cardano and Dogecoin.
Also read: 7 new crypto scams that investors should watch out for
Decentralisation
It refers to the principle of distributing power away from a central point.
Cryptocurrency do not rely on banks for verification or approval of transactions.
However, the supervision and decision making in blockchain are traditionally decentralized
as they required approval from all the users to make changes and operate.
Blockchain
Cryptocurrencies are managed by the global peer-to-peer network rather than being managed
by any central authority.
Blockchain is a digital ledger for recording transactions information.
The process is such that it is difficult to hack, change, copy or cheat the system.
The recorded transactions in this are duplicated and distributed across the entire network
of computer systems on the blockchain.
Each block in the chain consists of various transactions, which are made up of transaction
records as coins are purchased or sold, and when the new transaction occurs, its record
is added to each participant’s ledger, which is known as Distributed Ledger Technology
(DLT).
Blockchain is a kind of Distributed Ledger Technology (DLT) in which transactions are
recorded with an unchangeable cryptographic signature known as a hash.
ALSO READ: NatWest Cautions Investors Against Cryptocurrency Fraud
Hash
To add any transaction to a block in a chain, a hash algorithm is used that converts the
block into a unique string of numbers and letters.
Then two hashes are combined through the hash algorithm, which produce another unique hash
and this process continues until only one hash remains.
The process only works one way and it can’t be reversed.
Mining
Mining is the process of gaining new cryptocurrency by solving cryptographic mathematical puzzles
with the help of powerful computers.
The process includes validating data blocks and adding blocks to a public ledger called
blockchain.
Also read: What Is the Crypto Fear and Greed Index?
Bitcoin
Bitcoin is the first successful and most valuable cryptocurrency by market capitalization, launched
in 2009 by someone called Satoshi Nakamoto when its implementation was released as an
open-source software.
Bitcoin is based on the Blockchain technology and was created with a motive to use it as
a fiat currency to buy and sell goods and services, but in reality they are still not
accepted by many countries and face extreme volatility in its prices and liquidity problems.
Wallet
Crypto Wallet is a digital wallet which is used to hold cryptocurrency digitally to protect
them.
It is encrypted with a password to make it safe and accessible and allow the cryptoholder
to send and receive cryptocurrencies and in case the cryptoholder ever loss or forget
password they may lose all access to their holdings.
These wallets come in many forms, from hardware wallets to mobile apps and the two main types
of crypto wallets are Hot and Cold wallets.
The hot wallet is less secure as they are connected to the internet which makes online
trades convenient.
The cold wallet is more secure as it is kept offline but it is less convenient while making
purchases or trades.
Altcoin
Any cryptocurrency except Bitcoin is known as Altcoin, which were launched after the
success of bitcoin as an alternative.
Many altcoins are launched to overcome the drawbacks of the first cryptocurrency, bitcoin
with competitive advantages in newer versions.
The term “Altcoin” is the combination of “Alt”, i.e alternative, and “coin”,
which means cryptocurrency.
Also read: Altcoin Season: When Altcoins Are Set to Explode
Address
The term address refers to a specific position on the network where the digital currency
is sent, just as the bank account that holds only digital currencies.
Each address consists of a set of unique alphanumeric characters, which can only be used once to
hold cryptocurrencies with high security.
The address is also used by recipient to prove their ownership of the crypto asset sent to
them.
Gas
Gas is a fee that you pay to make a cryptocurrency transaction on the blockchain.
It covers the cost of paying a miner to search and receive cryptocurrency on your behalf
and amount of fee depends on how fast you want the transaction to be completed.