Let’s discuss about cryptocurrencies before looking at some basic terms for novices. Cryptocurrencies are virtual money that safeguard and validate every transaction through the use of encryption. Furthermore, they are decentralized, which means that no central authority, like a bank or the government, controls or issues them. Rather, a computer network that abides by a set of rules creates and maintains them.
For newcomers, the lingo and lexicon around cryptocurrencies might be perplexing. For those new to cryptocurrencies, here are some basic terms and their definitions.
Cryptocurrency terms for beginners
All-Time High (ATH)
The highest price a crypto coin has ever achieved. For example, Bitcoin reached its all-time high of $64,863 on April 14, 2021.
All-Time Low or ATH
The lowest price ever a crypto coin has ever achieved. For example, Bitcoin reached its all-time low of $0.06 on October 5, 2009.
Altcoin
Any cryptocurrency other than Bitcoin is the first and most successful of all cryptocurrencies. Some popular altcoins are Ethereum, Ripple, Cardano, and Binance Coin.
Blockchain
A blockchain comprises a number of blocks, each containing a group of transactions and a cryptographic connection to the block before it. Doing this creates a blockchain with a complete history of all network transactions.
Block
A computer file that stores a group of transactions and a cryptographic link to the previous block on the blockchain.
Block Height
The number of blocks that have been added to the blockchain since the genesis block, the first block ever created. For example, as of October 20, 2021, the block height of Bitcoin is 709,418.
Block Reward
The amount of cryptocurrency awarded to the miner who creates a new block on the blockchain. The block reward is usually halved every few years to control the supply of the cryptocurrency. For example, the current block reward for Bitcoin is 6.25 bitcoins per block.
Consensus Mechanism
The method by which the nodes on the network agree on the validity of new blocks and transactions. Different cryptocurrencies use different consensus mechanisms, such as proof-of-work or proof-of-stake.
Cryptography
This is simply the use of mathematical techniques to encode and decode data. Cryptography guarantees that only authorized parties can access or modify blockchain data.
Decentralization
The property of being distributed and operated by multiple independent entities rather than a single central authority. Decentralization enhances the security, transparency, and resilience of the network.
Exchange
A platform for buying, selling, or converting cryptocurrencies to fiat money. (such as US dollars or euros). Centralized and decentralized exchanges are the two types of exchanges we have currently.
Fiat Currency
a traditional currency, like US dollars (USD), euros (EUR), Japanese yen (JPY), or British pounds (GBP), that is issued and supported by a government or central bank. Fiat currencies are deposited in conventional banks and are recognized as legal tender in their home countries, where they can be used as a medium of exchange for goods and services.
Fork
A split in the blockchain that results in two or more versions of the ledger. A fork can be either hard or soft.
Hard Fork
Two incompatible versions of the ledger are produced when there is a persistent divergence in the blockchain. All nodes must update to the new protocol following a hard fork in order to avoid being stranded on the previous chain. Intentional or accidental hard forks might result in the creation of new cryptocurrencies. For instance, a 2017 hard fork of Bitcoin produced Bitcoin Cash.
Soft Fork
Two compatible ledger versions are created when there is a brief divergence in the blockchain. As long as nodes are able to validate transactions on both chains, a soft fork does not necessitate them upgrading to the new protocol. If sufficient nodes revert to the previous protocol, a soft fork can be undone. It can make little adjustments or network enhancements.
Hash data
From input data, a hash function creates a unique string of characters. A hash functions as the data’s digital fingerprint, identifying and authenticating it. Blockchain blocks, transactions, addresses, and keys are created via hashes.
Hash Rate
The measure of how much computing power is used to mine new blocks and secure the network. A higher hash rate leads to increased security and competitiveness.
Other Cryptocurrency terms for beginners
Proof of Work
Network participants can come to a consensus through the use of proof of work, or PoW. It involves using computer power to solve an encrypted hexadecimal number, or hash. On the blockchain, this procedure validates transactions and adds new blocks. Since mining entails getting paid for the labor completed, it is often known as proof of work. Peer-to-peer transactions can be handled safely with proof of work, negating the requirement for a reliable third party. But proof of work also uses a lot of resources and energy, which makes scalability and sustainability difficult. Proof of work is used by several cryptocurrencies, including Ethereum, Litecoin, and Bitcoin.
Proof of Stake (PoS)
An alternative consensus process known as proof of stake, or POS, requires network participants to take part in the validation of transactions on the blockchain by staking, or locking up a specific quantity of coins in a wallet or smart contract.
With POS, establishing coin ownership and adhering the protocol guidelines are more important than solving intricate puzzles. In exchange for their investment, stakeholders get benefits in the form of freshly produced coins and transaction fees. Proof of stake lowers energy usage and encourages honest behavior, which improves network security and efficiency.
But there are other hazards associated with proof of stake as well, like illiquidity (not being able to access or utilize the staked coins for a while) and slashing (losing a portion of the stake due to malevolent or careless activities). Some cryptocurrencies that use or intend to use proof of stake include Polkadot, Cardano, and Ethereum 2.0.
Know Your Customer (KYC)
Financial organizations use the Know Your Customer (KYC) process to confirm the identification of their customers and assess their risk level. Anti-money laundering (AML) and counter-terrorism financing (CTF) regulations require compliance with this process. Financial crimes such as money laundering, fraud, and financing of terrorism are prevented via KYC. Customers must present legitimate identification and address verification, such as an ID card, facial, biometric, or document verification, in order to meet KYC standards. Utility bills, driver’s licenses, and passports are a few types of KYC documents.
Cryptocurrency Wallet
A digital device or program that saves, transfers, and receives virtual money is called a cryptocurrency wallet. Digital currency. A private key and a public key are the two halves of a wallet. The private key is like a password that needs to be kept hidden and is used to sign transactions, whilst the public key is like an address that is used to accept payments from other people. Depending on compatibility, a wallet can support one or more cryptocurrencies. The Ledger Nano S, Trust Wallet, Metamask, and Coinbase Wallet are a few wallet examples.
Token
A token is a type of digital asset that stands in for a valuable asset, whether a share, right, utility, or money. Using an established blockchain platform, such as Ethereum or Binance Smart Chain, a new token can be created and issued using the ERC-20 or BEP-20 standard protocol. Depending on its design and use situation, a token can serve a variety of purposes. For instance, a token can control a system, reward users, grant access to a service,
raise money or act as a proxy for ownership. Tokens include, among others, USDT, UNI, LINK, and BNB.
Initial Coin Offering (ICO)
An initial coin offering (ICO) is a way to raise money where tokens are sold to potential investors in return for fiat money like US dollars or other cryptocurrencies.
An initial coin offering (ICO) is typically launched by a startup or project seeking to generate capital to develop its product or service. The whitepaper outlines the ICO’s vision, goals, roadmap, and tokenomics. Before tokens are used on the network or published on exchanges, investors may be able to purchase them at a reduced cost through an initial coin offering (ICO). But an ICO has a lot of dangers associated with fraud, scams, regulation, and volatility.
Decentralized Finance (DeFi)
The goal of the decentralized finance (DeFi) movement is to use blockchain technology and smart contracts to establish an open, permissionless, transparent financial system that runs without middlemen. Lending, borrowing, trading, investing, saving, insurance, and other traditional finance functions are all mirrored or enhanced by DeFi’s services and solutions. DeFi lowers expenses, generates passive revenue, and provides consumers with greater efficiency, control, and access to their money. DeFi must contend with complexity, rules, flaws, and hackers in addition to security lapses.
Non-Fungible Token (NFT)
An original and indivisible digital object, such as a piece of art, a collectible, a gaming item, or a domain name, is represented by a non-fungible token (NFT). Nonfungible tokens (NFTs) are rare and have unique qualities and values, in contrast to fungible tokens (like bitcoins or dollars), which are interchangeable and have the same value. On platforms like OpenSea, Rarible, Axie Infinity, and CryptoPunks that accept the ERC-721 or ERC-1155 standards, NFTs can be generated and sold. In addition to giving collectors and enthusiasts greater variety and use for their collections, NFTs can give artists and producers greater ownership, legitimacy, and financial potential for their work.
Gas
A measure of the computational effort required to complete a transaction on the Ethereum network, gas is one of the terminology for newcomers in the cryptocurrency world. It is paid for with ether (ETH), Ethereum’s native coin. Gas prices fluctuate according to network activity and traffic volume, which is based on supply and demand. The maximum gas amount a user is willing to spend to carry out a smart contract or complete a transaction is known as the gas limit. The product of the gas price and the gas limit is the gas fee. In addition to guaranteeing that users pay for the resources they use on the network, the fee also pays miners for their labor.
Conclusion
Cryptography is used by digital currencies and cryptocurrencies to safeguard and confirm transactions. Furthermore, they are decentralized, which means that no central authority, like a bank or the government, controls or issues them. Rather, a computer network that abides by a set of rules creates and maintains them.
For newcomers, the lingo and lexicon around cryptocurrencies might be perplexing. Several fundamental words related to cryptocurrencies, including proof of work, proof of stake, know your customer, wallet, token, initial coin offering, decentralized finance, non-fungible token, and gas, were defined for novices in this series of articles. We sincerely hope that this essay series was instructive and useful to you. See our cryptocurrency guides to find out more information about cryptocurrencies. I appreciate you taking the time to read!😊
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