Top Terms In Cryptocurrency You Need To Know Before You Invest: A Beginner’s Guide
The item you should add to your checklist is at least a beginner’s understanding of what you’re getting into, including how crypto differs from other investment strategies, and the different factors that can affect a cryptocurrency’s market value.
Here are some of the terms and phrases that will help beginners better understand the world of crypto investing.
Decentralization
The principle of distributing power away from a central point. Blockchains are traditionally decentralized because they require majority approval from all users to operate and make changes, rather than a central authority.
Decentralized Finance (DeFi)
Financial activities are conducted without the involvement of an intermediary, like a bank, government, or other financial institution.
Decentralized Applications (DApps)
Applications are designed by developers and deployed on a blockchain to carry out actions without intermediaries. Decentralized finance activities are often completed using decentralized apps. Ethereum is the main network supporting activities in decentralized finance.
DAO
Decentralized Autonomous Organization — this is a company or other organization that uses the blockchain to provide governance from all the investors in the DAO. DAO investors hold tokens associated with the DAO and can vote on projects, fund initiatives, or elect individuals to run the DAO. The votes are cast and are proportional to the investor's holdings.
Altcoin
An altcoin is any coin that’s not Bitcoin. Altcoins can be anything from the second-most popular coin, Ethereum, to any of the thousands of coins with very minimal market value. Experts say you should largely stick to the bigger, more mainstream cryptocurrencies as an investment.
Bitcoin
The first and most valuable cryptocurrency launched on Jan. 3, 2009. While its value has climbed steadily since then, it has seen wild fluctuations.
Bitcoin Cash
A peer-to-peer electronic cash system that formed from a fork of the original Bitcoin. Where Bitcoin is widely accepted as too volatile to be useful as a currency, Bitcoin Cash is designed to be better optimized for transactions.
Block
Groups of data within a blockchain. On cryptocurrency blockchains, blocks are made up of transaction records as users buy or sell coins. Each block can hold only a certain amount of information. Once it reaches that limit, a new block is formed to continue the chain.
Blockchain
A digital form of record-keeping, and the underlying technology behind cryptocurrencies. A blockchain is the result of sequential blocks that build upon one another, creating a permanent and unchangeable ledger of transactions (or other data).
Coin
A representative store of digital value that lives on a given blockchain or cryptocurrency network. Some blockchains have the same name for both the network and the coin, like Bitcoin. Others can have different names for each, like the Stellar blockchain, which has a native coin called Lumen.
Coinbase
A popular centralized cryptocurrency exchange. Coinbase made history recently as the first cryptocurrency exchange to go public on the Nasdaq.
Cold Wallet/Cold Storage
A secure method of storing your cryptocurrency completely offline. Many cold wallets (also called hardware wallets) are physical devices that look similar to a USB drive. This kind of wallet can help protect your crypto from hacking and theft, though it also comes with its own risks — like losing it, along with your crypto.
Cryptocurrency
A type of currency that’s digital and decentralized. Cryptocurrency can be used to buy and sell things, or as a long-term store of value.
HODL
Stands for “Hold On for Dear Life” though the term originated from a user typo on a Bitcoin forum in 2013. It refers to a passive investment strategy in which people buy and hold onto cryptocurrency — instead of trading it — in the hopes that it increases in value.
Mining
The process whereby new cryptocurrency coins are made available and the log of transactions between users is maintained.
Node
A computer software that connects to a blockchain network.
Non-fungible Tokens (NFTs)
Non-fungible tokens are units of value used to represent the ownership of unique digital items like art or collectibles. NFTs are most often held on the Ethereum blockchain.
Peer-to-peer
Two users interact directly over a network as a medium without a third party or intermediary.
Public Key
Your wallet’s address is similar to your bank account number. You can share your public wallet key with people or institutions so they can send you money or take money from your account when you authorize it.
Private KeyI
The encrypted key allows direct access to your cryptocurrency. Like your bank account password, you should never share your private key.
Satoshi Nakomoto
The pseudonymous creator of Bitcoin. No one knows the true identity of Nakomoto — or if it’s more than one person.
Smart Contract
It’s a set of programs/instructions that runs on the blockchain. One of the main value propositions of the Ethereum network is its ability to execute smart contracts.
Wallet
A place to store your cryptocurrency holdings. Many exchanges offer digital wallets. Wallets may be hot (online, software-based) or cold (offline, usually on a device) or smart contract wallet usually on EVM chains and chains with smart contract support
PoS
Proof-of-Stake — A consensus method for cryptocurrency where network participants deposit a portion of their holdings, subject to the network minimum, to let their node be a part of processing transactions. When a node is selected for the generation of blocks and processing of transactions, then the reward is paid to that validator.
PoW
Proof-of-Work — A consensus method for cryptocurrency where network participants use high-powered hardware (CPU, GPU, or ASIC) to compete to find the correct block ‘nonce’. The winner generates the new block and processes the transaction, and the owner receives the reward. This type of consensus is now considered to be inefficient and environmentally unfriendly; unless certain safeguards have been implemented to keep hardware requirements low.
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