The crypto market is diverse and filled with jargon that is both new and confusing. The trading world has its language, and crypto has quickly developed its own. All these new terms can be intimidating, but don’t let that discourage you from dipping your toes in the water. Crypto is a new and exciting asset class with a ton of potential. Every day, the industry is growing and becoming more mainstream.
This technology has many applications, like using a blockchain for identity or decentralized exchange. While it may be confusing at first, with a bit of research, you can quickly get up to speed and even become an expert in the space. To help you out, we have put together a list of 11 essential crypto terms that you should know before making your first investment. Let’s get started.
The Cryptocurrency of Altcoin and Bitcoin
The first term on our list is an altcoin. An altcoin is short for an alternative coin and refers to any cryptocurrency that is not bitcoin. There are currently over 5,000 altcoins, with more being created daily. Some most popular altcoins are Ethereum, Litecoin, and XRP.
Altcoins are often made to improve upon the original Bitcoin protocol. For example, Ethereum was created to be a more versatile platform that could be used to create decentralized applications. Litecoin was also made as an improvement on Bitcoin and is often referred to as the silver to Bitcoin’s gold.
Bitcoin, on the other hand, is the original cryptocurrency. It is now the largest and most well-known digital currency with over a $100 billion market cap. For many, Bitcoin is the entry point into the crypto world and is often used as a store of value.
Blockchain and Decentralized Exchange
The following term on our list is blockchain. Blockchain is a decentralized and distributed ledger that records all transactions in a secure and tamper-proof way. The data is then stored on a network of computers called nodes. It makes it nearly impossible to hack or cheat the system. Blockchain is the key innovation of Bitcoin and allows it to function without the need for a central authority.
A decentralized exchange is a crypto exchange that does not rely on a third party to hold or manage customer funds. Instead, trades are made directly between users through an automated process. This type of exchange is often seen as more secure and resilient to hacks since there is no central point of failure. For example, a software selling hosting service can use a decentralized exchange to sell its products in multiple currencies without having to hold or manage those funds.
Ethereum and Initial Coin Offering
Ethereum is a decentralized platform. These are applications that run exactly as programmed without any possibility of fraud or third-party interference. Ethereum is often used to build decentralized applications (dApps) and is the second largest cryptocurrency by market cap after Bitcoin.
An initial coin offering (ICO) is a way for projects to raise money by selling their cryptocurrency tokens. Investors can then use these tokens to access the new project or service. ICOs are a controversial fundraising method and have been banned in some jurisdictions. However, they remain popular in the crypto world and have been used to raise billions of dollars for new projects.
Non Fungible Tokens (NFTs)
Non-fungible tokens (NFTs) are a type of cryptocurrency token that represents a unique asset. NFTs can be used to describe anything from digital art to in-game items. They are often created on top of existing blockchain platforms such as Ethereum. One of the most famous examples of an NFT is CryptoKitties, a game that allows players to buy, sell, and breed digital cats.
NFTs have become increasingly popular in recent months as a way to invest in digital assets. However, they are also controversial due to their high prices and lack of liquidity. Some have even compared them to investing in Beanie Babies or other collectibles.
Cold Wallet and Hot Wallet
Talking about a cold wallet is cryptocurrency storage that is not connected to the internet. This offline storage is often considered more secure since it makes it less vulnerable to hacks. Cold wallets can take the form of a physical device such as a USB drive or a paper wallet. Investors usually recommend keeping only a small number of their crypto holdings in a hot wallet for day-to-day use.
On the other hand, a hot wallet is a type of cryptocurrency storage connected to the internet. Hot wallets are convenient for storing small amounts of crypto that can be easily accessed and used for day-to-day transactions. However, they are considered less secure since they are more vulnerable to hacks.
Cryptocurrency Mining And Minting
Cryptocurrency mining is transaction records (verifying and adding) to a blockchain. Miners are rewarded with a cryptocurrency token for their work. This process is essential to the function of most cryptocurrencies and is often done through a network of miners who compete to be the first to verify and then add a completely new block of transactions to the blockchain.
When we talk about minting in the context of cryptocurrency, we are referring to the process of creating new tokens. It might be similar to mining, but there are some key differences. Mining requires expensive hardware and a lot of electricity. On the other hand, minting can be done by anyone with a computer. All you need is the software to mint new tokens. Additionally, mining rewards are given to miners who verify and add new blocks of transactions to the blockchain.