- The skyrocketing prices of cryptocurrencies are fascinating for new investors.
- But proper knowledge about trade and risk is very crucial when it comes to cryptocurrencies.
- There are many terminologies and jargons used in the crypto market, like Bitcoin, Wallet, Altcoin, Mining and Blockchain.
Cryptocurrency is the newest investment rage across the world, which is very popular with the younger people. Skyrocketing prices of cryptocurrencies are surely fascinating for new investors, but they should be aware of the risk before investing.
10 Basic Terms you must learn before Crypto trading
Before investing in cryptocurrencies, the best place to start would be to get familiarize with some of the basic terminology and jargons that many of us have never heard but it may make it easier to understand how exactly cryptocurrency works.
Here are some of the most commonly used Cryptocurrency-related terms for you to get better understanding:
Cryptocurrency refers to digital or intangible money that exists solely in electronic form and it is encrypted to ensure that each transaction is secure. These transactions are recorded in a public ledger and the digital currency is stored in a digital wallet. It can’t be carried around like other fiat currencies, but can be used to buy and sell things. The word “crypto” refers to data encryption and “currency” is a medium of exchange. It works on a decentralised network based on blockchain technology. Some of the popular cryptocurrencies are Bitcoins, Ethereum, Binance coin, Cardano and Dogecoin.
It refers to the principle of distributing power away from a central point. Cryptocurrency do not rely on banks for verification or approval of transactions. However, the supervision and decision making in blockchain are traditionally decentralized as they required approval from all the users to make changes and operate.
Cryptocurrencies are managed by the global peer-to-peer network rather than being managed by any central authority. Blockchain is a digital ledger for recording transactions information. The process is such that it is difficult to hack, change, copy or cheat the system. The recorded transactions in this are duplicated and distributed across the entire network of computer systems on the blockchain.
Each block in the chain consists of various transactions, which are made up of transaction records as coins are purchased or sold, and when the new transaction occurs, its record is added to each participant’s ledger, which is known as Distributed Ledger Technology (DLT).
Blockchain is a kind of Distributed Ledger Technology (DLT) in which transactions are recorded with an unchangeable cryptographic signature known as a hash.
To add any transaction to a block in a chain, a hash algorithm is used that converts the block into a unique string of numbers and letters. Then two hashes are combined through the hash algorithm, which produce another unique hash and this process continues until only one hash remains. The process only works one way and it can’t be reversed.
Mining is the process of gaining new cryptocurrency by solving cryptographic mathematical puzzles with the help of powerful computers.
The process includes validating data blocks and adding blocks to a public ledger called blockchain.
Also read: What Is the Crypto Fear and Greed Index?
Bitcoin is the first successful and most valuable cryptocurrency by market capitalization, launched in 2009 by someone called Satoshi Nakamoto when its implementation was released as an open-source software.
Bitcoin is based on the Blockchain technology and was created with a motive to use it as a fiat currency to buy and sell goods and services, but in reality they are still not accepted by many countries and face extreme volatility in its prices and liquidity problems.
Crypto Wallet is a digital wallet which is used to hold cryptocurrency digitally to protect them. It is encrypted with a password to make it safe and accessible and allow the cryptoholder to send and receive cryptocurrencies and in case the cryptoholder ever loss or forget password they may lose all access to their holdings. These wallets come in many forms, from hardware wallets to mobile apps and the two main types of crypto wallets are Hot and Cold wallets.
The hot wallet is less secure as they are connected to the internet which makes online trades convenient. The cold wallet is more secure as it is kept offline but it is less convenient while making purchases or trades.
Any cryptocurrency except Bitcoin is known as Altcoin, which were launched after the success of bitcoin as an alternative. Many altcoins are launched to overcome the drawbacks of the first cryptocurrency, bitcoin with competitive advantages in newer versions. The term “Altcoin” is the combination of “Alt”, i.e alternative, and “coin”, which means cryptocurrency.
The term address refers to a specific position on the network where the digital currency is sent, just as the bank account that holds only digital currencies. Each address consists of a set of unique alphanumeric characters, which can only be used once to hold cryptocurrencies with high security. The address is also used by recipient to prove their ownership of the crypto asset sent to them.
Gas is a fee that you pay to make a cryptocurrency transaction on the blockchain. It covers the cost of paying a miner to search and receive cryptocurrency on your behalf and amount of fee depends on how fast you want the transaction to be completed.