Let’s talk about cryptocurrencies before we look at some basic cryptocurrency terms for beginners. Cryptocurrencies are virtual money that protects and authenticates every transaction through the use of encryption. Furthermore, they are decentralized, meaning that no central authority, such as a bank or government, controls or issues them. Rather, they are created and maintained by a computer network following a set of rules.
For beginners, the terminology and vocabulary surrounding cryptocurrencies can be confusing. For those new to the world of cryptocurrencies, here are some basic terms and their definitions.
Cryptocurrency Terminology for Beginners
All-Time High (ATH)
The highest price ever reached by any cryptocurrency. For example, the price of Bitcoin reached its all-time high of $64,863 on April 14, 2021.
All-Time Low (ATH)
The lowest price ever reached by any cryptocurrency. For example, the price of Bitcoin reached its all-time low of $0.06 on October 5, 2009.
Altcoins
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 consists of a number of blocks, each containing a set of transactions and a cryptographic link to the block before it. This creates a blockchain containing a complete history of all network transactions.
Block
A computer file that stores a set of transactions and a cryptographic link to the previous block on the blockchain.
Block Height
The number of blocks added to the blockchain since the original block, the first block ever created. For example, as of October 20, 2021, the block height for Bitcoin is 709,418.
Block Reward
The amount of cryptocurrency awarded to a miner who creates a new block on the blockchain. The block reward is typically halved every few years to control the cryptocurrency supply. For example, the current block reward for Bitcoin is 6.25 bitcoins per block.
Consensus Mechanism
The method by which 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 encrypt and decrypt data. Cryptography ensures 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 into traditional currency (such as US dollars or euros). Centralized and decentralized exchanges are the two types we currently have.
Fiat Currency
A traditional currency, such as the US dollar (USD), euro (EUR), Japanese yen (JPY), or pound sterling (GBP), is issued and backed by a government or central bank. Fiat currencies are deposited in traditional 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.
More cryptocurrency terms for beginners
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 the new protocol after a hard fork occurs to avoid stalling on the previous chain. Intentional or unintentional hard forks can lead to the creation of new cryptocurrencies. For example, a hard fork of Bitcoin in 2017 produced Bitcoin Cash.
Soft Fork
Two compatible versions of the ledger are created when a minor divergence occurs in the blockchain. As long as nodes are able to verify transactions on both chains, a soft fork does not require them to upgrade to the new protocol. If enough nodes return to the previous protocol, the soft fork can be rolled back. It can make small modifications or improvements to the network.
Data Hashing
From the input data, a hash function creates a unique string of characters. The hash acts as a digital fingerprint for the data, identifying and verifying its authenticity. Blockchain blocks, transactions, addresses, and keys are created through hashes.
Gas is a term for beginners in the world of cryptocurrencies. It is paid in ether (ETH), the native currency of the Ethereum network. Gas prices fluctuate according to network activity and volume, which depend on supply and demand. The maximum amount of gas a user is willing to spend to execute a smart contract or complete a transaction is known as a gas cap. The product of the gas price and the gas cap is the gas fee. In addition to ensuring users are paid for the resources they use on the network, the fee also pays workers for their work.
Conclusion
Cryptographic and cryptocurrencies use cryptography to secure and confirm transactions. Furthermore, they are decentralized, meaning that no central authority, such as a bank or government, controls or issues them. Rather, they are created and maintained by a computer network following a set of rules.
For beginners, the terminology and vocabulary surrounding cryptocurrencies can be confusing. Many cryptocurrency-related keywords, including Proof of Work, Proof of Stake, Know Your Customer, Wallet, Token, Initial Coin Offering, DeFi, Non-Fungible Token, and Gas, are defined for beginners in this series of articles. We sincerely hope you find this series of articles educational and helpful. Check out our cryptocurrency guides to learn more about cryptocurrencies. I appreciate you taking the time to read!
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