Cryptocurrency can seem like a confusing topic. Whenever you come across people discussing it online, it may seem as though they’re all talking in a foreign language. If you’ve ever considered investing in cryptocurrency or just want to understand what on earth people are talking about, you’re in the right place.
Below are the 25 key terms that everyone should know to get a better understanding of cryptocurrency, especially before you start investing in it:
Cryptocurrency is just like a normal currency in the sense that you’re able to buy and sell things using it. The difference is, cryptocurrency is digital and decentralized. This means that, unlike other currencies, no bank or other financial institution holds or controls cryptocurrency.
This is the name given to normal, government-backed currency. This currency isn’t backed against any physical commodity such as gold or silver. The government has control over this currency and is able to determine how much of it is printed. Modern-day examples of fiat currencies are the US dollar and the British pound.
Cryptography is what is used to keep cryptocurrency safe. It is a method of protecting information by using codes to ensure that only the intended recipient can read and decipher it.
This is a document created and issued by a new blockchain that details the technology, concept, methodology and roadmap of how it intends to succeed. This is created to inform investors on how the coin will work and operate. A good example to take a look at is the Bitcoin whitepaper.
The first-ever type of cryptocurrency was launched in Jan 2009. This is likely the type of cryptocurrency that you’ll see discussed the most online. Over the years, Bitcoin has seen incredible growth but has also seen major fluctuations over the last few years.
This is the term used to describe any other type of coin that isn’t Bitcoin. This could be to reference any other thousands of coins available.
According to CoinMarketCap, these are some of the top trending altcoins at the moment:
- Fantom $FTM
- Kalata $KALA
- Solana $SOL
- Fetch.ai $FET
- Ethereum $ETH
If you’re new to investing in cryptocurrency, it’s always good to research the coins that you’re interested in or stick to larger, more popular coins that are available.
A block is like a ledger page that contains details of transactions. These transactions are permanently recorded and blocks are stacked together in a series to create a blockchain.
This is the technology that underpins all cryptocurrencies. It’s a form of digital bookkeeping that is built from a series of blocks. These blocks act as a ledger that keeps a record of all transactions (plus other data) that cannot be removed or amended.
In cryptocurrency, this means that there is no central point within the network. Transactions are able to happen peer-to-peer securely online without the need for an intermediary.
This is the opposite of decentralised and refers to there being a middle man, such as an exchange, that manages transactions. Buyers and sellers place trust in this middleman to manage their assets. An example of this is a bank – they are the middle man between customers and sellers and are trusted by both parties to manage assets accordingly.
This refers to a radical change in blockchain technology that will either validate or invalidate previous transactions and blocks.
This is a backwards-compatible change in the blockchain protocol where previously valid transaction blocks are recognised as invalid.
Proof of Work
This is an algorithm that is used to confirm transactions and produce new blocks to the blockchain. Miners work to compete against each other to complete transactions on the network and get rewarded. The goal of proof-of-work is to stop users from printing extra coins that they didn’t earn, or double-spending. If users were able to spend their coins more than once, the currency would effectively be rendered worthless.
Proof of Stake
This is similar to proof of work in the sense that it’s the process by which users get selected to add a new batch of transactions to the blockchain and earn themselves some crypto in return. Proof of stake blockchains employ users who ‘stake’ their own crypto in exchange for the chance to be able to validate new transactions, update the blockchain and earn a reward in return. The network selects a winner based on the amount of crypto they have ‘staked’ and how long it has been invested for. In essence, the network rewards those who are the most invested.
This is a string of unique sets of letters and numbers that are unique to each individual, like an email address. This acts as a virtual location where cryptocurrencies can be sent to.
A public key is a cryptographic code that allows you to receive cryptocurrency transactions and is paired to a private key. Your public key is usually an address that is just a shortened version of your public key.
A private key allows you to prove your ownership of assets and be able to spend the funds associated with your public key. A private key can take many forms such as a 256 character long binary code or a QR code.
This is the place where any cryptocurrency you may hold is stored. This is usually stored digitally via different exchanges.
This refers to a wallet where your coins are stored offline (such as on a computer or other device). This type of wallet is considered more secure and harder to be compromised as it is not connected to the internet and is only vulnerable to physical threats. Cold wallets can come in two forms: a paper or hardware wallet. A paper wallet is a printout of your public and private key onto a piece of paper. This is ideal for longer-term storage as it’s out of the way of hackers. A hardware wallet is a device, similar to a USB, that stores your private key and can be connected to a computer to carry out transactions.
This refers to a wallet where your coins are stored online and digitally (such as via an exchange). These wallets are connected to the internet and often considered as less secure as it is susceptible to online attacks by hackers. Because your wallet is online, it is often a lot easier and faster to access compared to a cold wallet.
The name given to digital marketplaces where you’re able to buy and sell cryptocurrencies.
A token is a cryptocurrency that is built on top of an existing blockchain.
Non-Fungible Tokens (NFTs)
These are used to represent ownership of unique and rare digital assets such as art or collectables. They are units of value and are often held on the Ethereum blockchain.
Hashing refers to the transformation of an input of any size (such as text), into a string of bytes that are of a fixed length and structure. This is used to write new transactions into the blockchain through the mining process.
This is a deliberate misspelling of ‘hold’ that crypto traders often use when talking about cryptocurrency.
These are some of the key terms you’re likely to encounter when embarking on your cryptocurrency journey. At Emma, we’re always working to add new features to the app. On our roadmap, we’re currently working on adding the ability for our users to be able to buy and sell crypto within the app. You’ll also be able to read up on crypto news so you’re always in the know.