Understanding Cryptocurrency and Decrypting Crypto Lingo
What are cryptocurrencies? What is blockchain? What is a token? What’s the difference between cryptocurrencies and fiat money? This article will help you understand it all.
Introduction: What are Cryptocurrencies?
Cryptocurrencies, sometimes called ‘cryptoassets’ or simply ‘crypto’, are digital or virtual currencies that are designed to work as a medium of exchange.
While we also use fiat currencies to transact digitally, they only represent numbers or database entries in a bank’s system. Cryptocurrencies are unique as they use cryptography to secure and finalize transactions, control the creation of additional units, and verify the transfer of assets to ensure transparency.
The first decentralized cryptocurrency was Bitcoin created in 2009 by an anonymous person under the alias Satoshi Nakamoto.
Cryptocurrency Terminologies You Need to Know
Airdrop: A campaign used by different teams to promote their project by distributing free coins or tokens to the public.
Altcoin: The term Altcoin refers to cryptocurrencies that are alternatives to Bitcoin. Ethereum is one of the most popular altcoins that has spawned multiple coins and tokens in the crypto market.
ATH: An acronym for All-Time High, historically the highest price an asset reached in its existence.
Bitcoin/bitcoin: bitcoin (lowercase) generally refers to the blockchain network or protocol, and Bitcoin or BTC (uppercase) refers to the cryptocurrency used in the network. Bitcoin is characterized by being decentralized and runs on open-source code, not backed by any centralized institution like a government or central bank.
Blockchain: is a decentralized ledger of transactions, where each block is linked to previous blocks, forming a chain of blocks that contains information.
Each block is generated using a consensus algorithm like Proof-of-Work (using machines) or Proof-of-Stake (staking coins), encrypted with a unique hash and a timestamp.
Think of it as accounting (credit and debit) but combined with encryption. The transaction data is incorruptible and will live forever once it has been included in the blockchain.
Block Explorer: A tool that queries the whole blockchain network to check the status of any transaction or investigate a trail of addresses.
Coins and Tokens: A coin is a cryptocurrency that has its own blockchain and is also used as “gas” to spend for transactions, while a token is a cryptocurrency that relies and is hosted on another cryptocurrency’s blockchain.
dApp: A portmanteau of decentralized and application, dApps are applications that use coins to interact directly with smart contracts and blockchains rather than private databases owned by corporations. Use-cases of dApps include crypto wallets, DEX or decentralized exchange (for trading), payments, web browser, etc.
Digital asset: An umbrella term for any resource that exists in digitized form and that someone can own or represent content that someone can hold, share, or sell.
These assets include graphics, 2D and 3D files, video, sound files, web pages, electronic documents, cryptocurrencies, and NFTs.
HODL: A misspelling of the word HOLD in English, HODL is a strategy with the intention of holding the asset for the long term, regardless of whether the market is bullish or bearish.
Marketcap: Short for market capitalization, Marketcap is the total market value of a cryptocurrency that is usually denominated in US Dollars. It is multiplied by the asset’s price and circulating supply (available coins in public).
Mining: The process of creating coins in a Proof-of-Work blockchain by solving mathematical problems with powerful computer systems called ‘miners’.
Open-source: A software development model based on transparency and open collaboration. It allows for modifying the source code of the program without license restrictions. Programmers can read, modify, and redistribute the source code of a program so that it evolves, develops, and improves. Most crypto protocols and encryption tools are built upon multiple open-source software (OSS).
Public Keys: These are addresses that can host coins, tokens, and other types of cryptoassets like NFTs. In layman’s terms, public keys are called wallets which are likened to bank accounts in finance.
Private Keys: A set of words to decrypt the public key (open the wallet) and sign or engage in transactions.
In finance, they are likened to your bank account’s PIN number that is needed to open or engage in transactions.
Smart Contract: They are a self-executing contract between two or more parties, without the intervention of a third party or a middleman. It is written in code and is hosted publicly on the blockchain network.
Tokenomics: Study of the economic incentives generated by a crypto project based on value creation, token distribution, and utility, among others.
Web3: The collective term for the next generation of the internet, Web3 or Web 3.0 is a more inclusive and open internet that empowers the users rather than centralized platforms like Facebook and Google by interacting data through public blockchains, open-source dApps, decentralized finance, etc.
Whales: Crypto whales are individuals or groups of people that hold a large percentage of cryptocurrencies of a blockchain project. They have the capability to move the markets (up or down) due to their amount of holdings.
Whether you’re new to cryptocurrency or a crypto pro, this glossary of terms will be handy in your journey to the crypto world.
Cryptocurrencies are quickly changing the way we think about money. The future of cryptocurrencies is uncertain, and many questions still need to be answered. However, it does not seem like they will disappear anytime soon.
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Disclaimer: This article is for educational purposes only and must not be treated as financial or legal advice.
Please conduct due diligence and manage your risks accordingly.