With the cryptocurrency mania gripping the world, the digital asset is attracting more and more investors with time. With the increasing investor base, there has to be an increase in investor awareness. While most people have heard of cryptocurrency, yet they haven’t fully grasped its meaning. But don’t worry, we will help you with the basics.
Here are 10 terms you should know before investing:
- Cryptocurrency: Cryptocurrency is a digital currency in which transactions are verified and records are maintained by a decentralised system using the cryptography technique. This is contrary to legal tender that stores records through a centralised authority.
- Bitcoin: It is the world’s most famous cryptocurrency by far. Wait! It is also the world’s largest cryptocurrency, with its current market capitalisation pegged at US$909.21 billion – much in league with the big-tech firms. Trading near the US$50,000 a piece as on date, Bitcoin can be sent from one user to another on the peer-to-peer bitcoin network without the need for intermediaries. In case of Bitcoin, a public ledger records all its transactions and copies are held on servers around the world.
- Altcoin: It is a portmanteau of "alternative" and "coin." Now the thing with Bitcoin is that it is the first of its kind, and a brand in itself. Bitcoin is something like what Xerox Corporation means for photostats. Since Bitcoin is widely regarded as the first of its kind, new cryptocurrencies that were developed after – are viewed as alternative coins — or altcoins. These coins generally project themselves as better replacements for Bitcoin, with most of them trying to target any perceived drawbacks that Bitcoin has and come up with competitive advantages in newer versions.
- Stablecoin: Worried about the volatile pricing of Bitcoin and Altcoins? Understandable. After all, cryptocurrency investors have been on a roller-coaster ride this year – oscillating between the extremes. There is a solution – stablecoin. Stablecoins are cryptocurrencies that attempt to peg their market value to some external reference. The external reference can be in the form of a cryptocurrency, fiat money, or to exchange-traded commodities.
- Blockchain: A technology that drives Bitcoin, blockchain collects information together in groups, also known as blocks, that hold sets of information. In simpler terms, it is a system of recording the information in a way that makes it difficult or impossible to change, hack, or cheat the system. A blockchain is essentially a sort of digital ledger for transactions that is duplicated and distributed across the entire network of computer systems on the blockchain.
- Decentralisation: The principle of distributing power away from a central point is known as decentralisation. This concept has got more to do with the technology backing cryptocurrency – blockchain – than crypto itself. It refers to the transfer of control and decision-making from a centralised entity (individual, organization, or group) to a distributed network.
- Crypto mining: It is the process of earning cryptocurrencies by solving cryptographic equations with the use of high-power computers. The process of solving comprises verifying data blocks and adding transaction records to a public ledger known as a blockchain.
- Cryptocurrency Exchanges: They are also called as digital currency exchanges (DCE). Crypto exchanges allow customers to trade cryptocurrencies or digital currencies for other assets – like conventional fiat money or other digital currencies. These exchanges can accept a gamut of payments – credit card payments, wire transfers or other forms of payments in lieu of digital currencies. Just like a stock exchange, a cryptocurrency exchange can be a market-maker that usually takes the bid–ask spreads as a transaction commission for the service it is providing or, it simply charges the fees.
- Crypto Wallet: Crypto wallets store your private keys and passwords of digital assets, keeping your crypto safe and accessible. They can also allow you to send, receive, and spend cryptocurrencies. They come in multiple forms – from hardware wallets like Ledger to mobile apps. A crypto wallet aims to make the use of crypto as easy as shopping with a credit card online.
- Fork: Think that there is a discrepancy in the blockchain rules that you are using? Don’t worry, you can ‘fork’ it. When a blockchain user makes changes to the rules it is known as a ‘Fork’. These changes to the protocol of a blockchain may result in two new paths. The last famous fork was that of Ethereum – the London Hard Fork – that took place in early August 2021.