Are you looking to immerse yourself into the crypto world? Here we cover a list of often used terms that will help you get started on this journey.
Any person who has decided to take the first steps into the crypto world and wants to succeed needs to understand some key terminology first. Before jumping into crypto trading, it is essential to learn this new language.
There are plenty of crypto terms, and they all may seem confusing, but after reading this article, you will get a better comprehension and understanding of all the basics. The glossary below explains some of the most used crypto words for beginners.
Cryptocurrency
A digital, decentralized currency generated by solving complex cryptographic puzzles. This cryptography is a secure mechanism that makes it almost impossible (with the current known technology) to falsify or double-spend, known as the process of making two payments with the same currency or funds in order to deceive the recipient of those funds.
One key feature of cryptocurrencies is that they are not issued by any central authority, which means that theoretically, they are immune to government interference or manipulation.
Cryptocurrencies are decentralized networks based on blockchain, which leads us to the next term.
Blockchain
Blockchain is a distributed, decentralized, public ledger. In other words, it is a database that is validated by a wide community, rather than a central authority. This community plays a crucial role in cryptocurrency systems to maintain a secure, decentralized record of transactions.
The innovation with blockchain is that it guarantees the fidelity and security of a record of data and generates trust without the need for a trusted third party.
The main difference between a blockchain and a typical database is how the data is structured — blockchain collects information in groups, known as blocks.
Block
In cryptocurrency blockchains, blocks are groups of transaction records created by users when they buy or sell coins. Each block can store a certain amount of data, and once it reaches that limit, in order to continue with the chain, a new block is created.
Blocks have certain storage features. Once it is filled, they are closed and linked to the previously filled block. That builds a chain of data known as the blockchain.
Blockchain address
A blockchain address is a unique sequence of numbers and letters that identifies and refers to a specific destination in the network where cryptocurrency can be sent to. One important thing to mention here is that it can be used only once. The idea is to give a person a unique address every time they receive crypto.
To be more clear, let’s put all this in a simple example. John owes some money to his friend Mike, and he is willing to receive some bitcoins as repayment, so Mike generates a new unique address using his wallet application that allows John to send the bitcoins only for that specific occasion.
Wallet
A crypto wallet is a place where cryptocurrencies are stored. You can also send and receive digital currencies. There are lots of wallets that hold many different types of currencies in one place.
Similar to an email, a crypto wallet has a unique ID and a private key to authenticate and prove possession by the owner.
Miners
People who run computers to solve algorithms that process and validate all transactions on the blockchain are called miners. This is a competitive process that verifies and adds new transactions to blocks in the chain. That process uses the proof-of-work method. When someone (the winner miner) wins the competition, they are rewarded with some amount of currency as a transaction fee.
Transaction fee
The work or service that the miners are doing is being paid for with a transaction fee. By using a blockchain explorer tool, it is possible to see the amount, as well as the fee, for each transaction in the blockchain.
DeFi
The concept of decentralized finance applications is one of the main key pieces. DeFi represents a change and a shift from traditional financial systems to models that rely on programmable, interconnected protocols, typically using smart contracts and based on blockchains. This means that it is far away from what a traditional bank represents.
Smart contracts
These types of contracts are eliminating the need for intermediaries, such as banks or attorneys. Smart contracts are simply programs stored in a blockchain that run when predetermined conditions are met.
They typically are used to automate the execution of an agreement. All the participants can be sure about the outcome when a condition is reached without losing time and without any intermediary’s intervention. In some occasions, they can also automate a kind of workflow, thereby triggering actions when conditions are met.
Exchange
A crypto exchange is a platform where you can buy and sell cryptocurrency. The typical use case is to trade one crypto for another or for the U.S. Dollar or another currency.
Wrapping up
There are plenty of things to learn related to the crypto world, and this was meant to be a starting point to continue looking up and reading about the influence it has in our lives. Crypto has changed the way we look at money, the way we trade, buy, spend, or sell things, and it will continue transforming our daily tasks.
Now, you have learned the main terminology that will help you immerse yourself more deeply into this crypto world and beyond.
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