If you’re on this page, reading the following article, there’s a high probability that you’re curious about the crypto world. And, if you’re unaware of some terms and want to dive into the crypto world, you’re on the right page.
Listed below are terms that you should know. We’ll start with some basic definitions and then proceed to complicated ones.
When you want to gain knowledge of the crypto world, you must know about the concept of Bitcoin first. This is because everything in the crypto world started with the launch of Bitcoin. It’s called the progenitor of digital currencies.
Bitcoin is a decentralized cryptocurrency or digital currency. The mysterious Satoshi Nakamoto had little idea that he would change the world with his invention, Bitcoin in 2009. Here, the word “decentralized” is important. When we refer to Bitcoin as a decentralized digital currency, we mean that any government or authority does not control it. Since no organization has the authority to monitor the Bitcoin market, there are multiple benefits of investing in the crypto-coin, including low to zero transaction costs and non-taxable profits.
When the crypto-coin was launched in 2009 as an open-source code, it was valued at a few cents only. But its peak came in 2017 as it crossed the $20,000 mark. Bitcoin is known for its price volatility as the price dropped to $7,000 in a few months. Its heavy price fluctuation is what generates interest amongst crypto enthusiasts and investors.
- Blockchain Technology
Now, if you want to know how Bitcoin or any other existing crypto-coin was developed, you need to understand what blockchain technology is. It’s the core system governing Bitcoin and other cryptocurrencies that include Ethereum, RippleCoin, etc. Most crypto developers believe that blockchain technology is more valuable as it has the potential to be utilized for other projects in the future as well.
The basic foundation of the technology is storing transactions in a ‘block’ and then cryptography to link many such blocks consecutively or in a ‘chain’. This is what ‘Blockchain’ literally means, ‘a chain of blocks’. The primary function of the technology is to ensure the transactions occurring are not just valid, but that they are also accessible in the public domain. To make the transactions even more secure, it encrypts them under a safe system and makes altering transactions impossible. The blockchain network is also an open, public distributed ledger by people in the crypto community.
‘BTC’ is a three-letter acronym used for Bitcoin. You’ll notice that most crypto exchanges use acronyms to denote Bitcoin and other cryptocurrencies.
- Cryptocurrency or Digital Currency
Cryptocurrency is derived from cryptography, upon which it depends for validating and approving transactions. Since authorities don’t have any control over cryptocurrencies, it’s the responsibility of blockchain technology to ensure secure transactions. Even though Bitcoin and some other crypto-coins are the most significant cryptos, there are over 1000 cryptocurrencies.
- ICO (Initial Coin Offering)
Initial Coin Offering or ICO refers to the event in which any crypto-coin is launched. In an ICO event, the new crypto-coin is made available to the public for investment. ICO is quite similar to IPO or Initial Public Offering, wherein a company makes its shares public for investment purposes for the very first time.
When you’re investing in any ICO, you’re backing the coin to do well in the future. You’re expecting the value of the cryptocurrency to go up in a few months or years.
Altcoins or alternate coins is an acronym designated to the group of cryptocurrencies other than Bitcoin. So, Ethereum, LiteCoin, RippleCoin, Tether USD, and other cryptos form altcoins. Since Bitcoin is the progenitor of all cryptocurrencies and was the only crypto-coin that existed for several years, it’s excluded as a part of altcoins.
- Ethereum (ETH)
When you observe cryptocurrencies in terms of market capitalization, you’ll see that ETH (Ethereum) is the largest crypto-coin after Bitcoin. ETH is the acronym designated to Ethereum. If you want to invest in cryptocurrencies, don’t look beyond Ethereum as it’s regarded as the safest crypto-coin in the market.
The most significant aspect of Bitcoin and other cryptocurrencies is the non-existence of central authority over them. Decentralized crypto-coins have multiple benefits associated with them. First, as an investor, you don’t have to pay taxes on your transactions. Second, there’s a limited supply of any crypto-coins, ensuring that its value goes up after some time. And, last but not least, you’re not accountable to your government for your crypto-asset holdings.
Cryptography, also called cryptology, is the practice of strategies and their technical executions that ensures secure communications. For instance, if you’re sending a text message to your friend and wish to ensure that only they’re able to understand it, you may alter every letter of the text with a unique symbol or number. The person who possesses the appropriate table with answers, in this case, your friend, can access and understand the message you sent.
With the help of the substitution table, your friend will revert a reply to you that only you can understand. Cryptology was developed several thousand years ago since there was a need for private and secure communications during wars.
- Crypto Wallet
A crypto wallet is a software or platform wherein you can stack up or store cryptocurrencies. It also allows you to carry out transactions using the app. There are many reliable and secure wallets on the Internet and you can choose the one suited to you.
- Cold Wallet
A cold wallet is a wallet that isn’t linked with the Internet. You can download such wallets on any USB drive. It allows you to store private keys and transactional information on USB drives.
These types of wallets are regarded as more secure than “hot wallets” as any malicious agent (hacker) would require physical access to your USB drive to compromise your wallet.
- Hot Wallet
Just the opposite of cold wallets, hot wallets are wallets that function when linked to a working Internet connection. It’s accessible in the form of mobile applications or web applications. It’s more practical and to use hot wallets as you can carry out transactions instantly using the app. It’s less secure on the security front than cold wallets as it becomes easier for a hacker to access your wallet using the Internet.
- Private Key
It’s a unique key or password generated for you. Its primary function is to secure and encrypt your wallet. The key consists of random characters generated in a sequence. Without your private key, you won’t be able to complete your payments or access your wallet. You need it to send and receive funds. You won’t be able to recover your funds or access it if you lose your private key.
A node is a computer that works when connected to the Internet. It helps in the functioning of any given cryptocurrency. Nodes are the mainstay of the blockchain technology running any crypto-coin responsible for validating and securing transactions. It stores transactions in blocks and when the storage space of a block exhausts, it moves on to the next block. You can say that it’s the system of nodes that keeps any cryptocurrency running.
- Network Confirmation
You should’ve understood by now that Bitcoin, similar to other cryptocurrencies, is backed by decentralized system. There’s no controlling authority that validates or approves a transaction. It’s the responsibility of the Bitcoin system or the network of nodes to validate every transaction.
The nodes present in a Bitcoin system has to confirm every transaction carried out. The more the number of validations, the more is the possibility that the transaction is valid and safe. To be valid, any transaction has to receive six confirmations.
- Light Node
A light node refers to a computer responsible for running the mini version of any cryptocurrency system. Since it’s a mini-version of the full software, the features offered by it are limited. The features include payment verifications, and therefore, it’s becoming popular amongst the crypto community as it increases the efficacy of the technology and reduces the time taken to approve transactions.
Initially, when cryptocurrencies were developed, it was done with the purpose that they would be utilized as a payment method. But over time, developers have understood that blockchain technology has more to it than using it for making payments only.
Smart contracts are one of its uses. Tokens are referred to as the parts of crypto networks that have more uses than any regular cryptocurrency.
- Full Node
It’s a computer that runs the full version of the cryptocurrency software. It contains all transactions completed in the particular cryptocurrency. Full nodes offer all necessary features and verifies transactions without depending on any third-party network.
As mentioned a few times before, there’s no central monitoring authority that validates transactions. So, it’s upon the network of nodes running every cryptocurrency to confirm transactions. As the nodes rely on algorithms and software, they need to reach a consensus or agreement before validating each one. This agreement amongst a network of nodes is called consensus.
By now, you know that it’s the function of a network of nodes to validate transactions. When the storage space of a block is exhausted, the network of nodes creates and moves on to the next block.
This process of creating new blocks and adding them to a blockchain is called mining. It’s one of the most important concepts you must know about if you’re new to the crypto community. The name comes from the literal meaning of “mining” which refers to the extraction of precious metals. Similar to the mining of metals, the mining of Bitcoins increases the number of crypto-assets in circulation.
- Security Token
A security token is a part of tokens depicting real-life and physical assets such as real estate, company shares, etc. We know these assets are subjected to more regulations than crypto-coins, but security tokens’ function is to make selling, trading, and purchasing of these assets more efficient.
- Smart Contracts
Smart contracts refer to digital contracts that get executed automatically by crypto software. For example, you can use the method of smart contracts to challenge your friend on whether it would rain or not the next day. Your friend and yourself can deposit funds in a temporary crypto wallet. If it rains the next day, the system will verify it automatically. Then, the money is transferred to the person who wins. A smart contract provides benefits like impartiality and security to the two involved parties.
Central Processing Unit or CPU is the brain of the entire system or computer that carries out mathematical and logical operations. If you’re a cryptocurrency miner, the better you work with CPU, the higher your chances of solving cryptography problems.
A cryptocurrency or Bitcoin miner is a developer or a group of developers who carry out specific crypto-coin mining.
GPU (Graphical Processing Unit) is an electrical component of a computer that’s responsible for solving graphics. Some crypto projects allow a system in which GPUs are more efficacious than CPUs.
Tether USD is the biggest stable coin that has a market capitalization of over $2 billion.
Satoshi is the minutest component of Bitcoin and it is equivalent to one hundred millionths of one Bitcoin. This Bitcoin unit is named after Satoshi Nakamoto, who actually released the Bitcoin software and paper.
A fork is a common term used by software developers and it also is relevant for cryptocurrencies. As a fork is developed, the present source of the technology is replicated in a new and independent software version. Both the parent and the child programs in a fork use the same program. The relevance of the introduction of a fork is that a separate team of software programmers take over the version to make improvements and modifications. It may be possible that the original developers did not agree with the modifications. In the case of cryptocurrencies, the renowned case of the fork was Bitcoin Cash that got forked from Bitcoin, the parent cryptocurrency, in 2017. The creators of Bitcoin Cash wanted to enhance the storage capacity of the unit blocks in the blockchain to become more efficient by approving more transactions in less time. As the Bitcoin developer team didn’t approve of this change, it was forked to create a rival, Bitcoin Cash.
An exchange for the cryptocurrency is an Internet-based platform on which users transact in cryptocurrencies. They can exchange certain crypto for some other. Also, a few exchanges allow customers to exchange fiat-currencies for cryptos and vice versa.
- Stable coin
A type of cryptocurrency backed by commodities like silver or a fiat currency like the Euro. Stable coins give liquidity and high security for those who want to temporarily offload or sell their cryptos and keep their capital in that exchange.