The ABCs of Cryptocurrency
A - D
Altcoin, or alternative coin, refers to any type of cryptocurrency other than Bitcoin. There are currently over 17,000 different types of cryptocurrencies.
A blockchain is a distributed database that is shared among the nodes of a computer network. As a database, a blockchain stores information electronically in digital format. Blockchain gets its name because the system is built from blocks of data that are chained together in chronological order so that all transactions are visible to everyone on the network. The way the system is constructed means that the records are theoretically unchangeable. A blockchain runs on a decentralized network of computers, called nodes, which allows for peer-to-peer confirmation that drives faster, more secure transactions. The speed, security, and transparency of blockchain have allowed for the growth of cryptocurrencies worldwide.
Groups of data within a blockchain. On cryptocurrency blockchains, blocks are made up of transaction records as users buy or sell coins. Each block can hold only a certain amount of information. Once it reaches that limit, a new block is formed to continue the chain.
If you’ve heard of crypto, you’ve likely heard the term Bitcoin. Bitcoin is the largest and most popular form of digital currency. It was introduced to the public in 2009 by an anonymous developer or group of developers using the name Satoshi Nakamoto. One of the key characteristics of Bitcoin is that its coin supply is limited. The maximum number of bitcoins that can be issued – mined – is 21 million, due to the halving feature written into the code. Bitcoin inventors designed the cryptocurrency essentially as digital gold and capped the maximum supply to mimic the finite quantity of physical gold. As of January 2022, 18.9 million bitcoins have already been issued, with 2.1 million still to be released. The cost of one coin is roughly $40,000, but because of its digital nature, you can purchase fractions of one coin.
A peer-to-peer electronic cash system that formed from a fork of the original Bitcoin. Where Bitcoin is widely accepted as too volatile to be useful as a currency, Bitcoin Cash is designed to be better optimized for transactions.
Cryptocurrency, often referred to simply as crypto, is known as any form of currency that exists either digitally or virtually and uses cryptography to ensure secure transactions. Unlike traditional currencies that have a central issuing or regulating
authority (like the government or a bank/credit union), cryptocurrencies circulate without a central monetary authority. Instead, crypto uses a decentralized system to record transactions and issue new units.
Crypto is digital, meaning that is it only generated and traded in a digital or virtual format. Additionally, because it is a digital currency, the value of most cryptocurrencies is not pegged to a fiat currency like the United States Dollar or Japanese Yen, nor is it determined by precious metals like gold or platinum.
Cryptocurrencies can be mined or purchased from cryptocurrency exchanges.
Cryptography is the study and practice of sending secure, encrypted messages between two or more parties. It allows digital currency transactions to be pseudonymous and ensures that each unit of cryptocurrency is secure and can’t be copied. It also protects from double-spending. If you are interested in investing and trading in cryptocurrency, you can rest assured that your transactions are safe and secure.
Coin is the umbrella term for cryptocurrencies and tokens. Coins were created to be used as money. They can help with paying for goods and services, can be held for later, and can be divided into fractions of the whole.
Also known as a hardware or offline wallet, this term refers to a cryptocurrency wallet that cannot be compromised because it is not connected to the internet.
Decentralized Crypto Exchanges (DEXs)
Blockchain-based apps that coordinate large-scale trading of crypto assets between many assets. They do that entirely through automated algorithms, instead of the conventional approach of acting as a financial intermediary between buyers and sellers. The idea behind a DEX is “disintermediation,” which means removing middlemen to allow regular people to do business directly with each other.
The risk that cryptocurrency can be used twice or more. Double-spending occurs when someone alters a blockchain and inserts a special one that allows them to acquire a cryptocurrency. Although double-spending can happen, it is more likely that a cryptocurrency is stolen from a wallet that wasn't adequately protected or secured.
E - H
An exchange is a digital marketplace where you can buy and sell different types of cryptocurrencies and tokens. These coins can then be deposited back into a wallet, which supports the coin. Sometimes it’s also possible to convert it to dollars.
Ethereum is the second-largest cryptocurrency by trade volume and market cap. It is a blockchain network and software platform that developers can use to build apps and other cryptocurrencies. The associated currency for Ethereum is called Ether, and the cost of one token is roughly $4,000. If you don’t want to purchase a whole Ethereum token or don’t have enough money in your account for a full coin, you can purchase a fraction of one.
The associated currency for Ethereum.
Fiat currency, also referred to simply as fiat, is money issued by a government or organization that is allowed to issue it. Fiat is backed up by its economy and has an institution that regulates it (a central bank). Examples of fiat currencies include the Great British Pound (GBP), the United States Dollar (USD), and the Japanese Yen (JPY).
A fork occurs when a blockchain’s users make changes to its rules. These changes to the protocol of a blockchain often result in two new paths – one that follows the old rules, and a new blockchain that splits off from the previous one. For example, a fork of Bitcoin resulted in Bitcoin Cash.
A fee that developers must pay to the Ethereum network to use the system. Gas is paid in Ether, the native cryptocurrency of Ethereum.
The first block of a cryptocurrency ever mined.
A feature that was written into Bitcoin’s code in that after a certain number of blocks are mined (typically every four years) the amount of new Bitcoin entering circulation gets halved. The halving can have an impact on Bitcoin’s price.
A software-based cryptocurrency wallet connected to the Internet. While more convenient for quickly accessing your crypto, these wallets are a bit more susceptible to hacking and cybersecurity attacks than offline wallets, or cold wallets – just as files you store in the cloud may be more easily hacked than those locked safely in your home.
I - L
Initial Coin Offering (ICO)
Similar to an Initial Public Offering (IPO) of stock, an Initial Coin Offering is a way that funds are raised for a new cryptocurrency project.
Joy of Missing Out (JOMO)
This term refers to a trader who is happy that they did not take a certain position. This phrase is often said after a considerable price drop.
Know Your Customer (KYC)
This phrase was created to combat money laundering via cryptocurrencies. At almost every ICO it is mandatory to prove that you are who you say you are. This is also regularly requested at crypto exchanges.
A record of financial transactions. A ledger cannot be changed, it can only be appended with new transactions.
M - P
The process whereby new cryptocurrency coins are made available and the log of transactions between users is maintained.
A computer that connects to a blockchain network.
Non-Fungible Tokens (NFTs)
Units of value used to represent the ownership of unique digital items like art or collectibles. NFTs are most often held on the Ethereum blockchain.
A system in blockchain technology where token holders vote and make decisions on proposed changes or upgrades to improve the network’s performance without compromising its security.
A system where two parties can conduct financial transactions with each other without involving a third party, like a bank.
Q - T
A blockchain that is resistant to attacks from quantum computers. Quantum computers are still not fully functional, but they’ve reached a stage where it’s believed they can be implemented in the future. This implementation would make current encryption methods vulnerable against quantum computers because of their ability to break through cryptography codes much faster than traditional computing.
Ripple is the company behind the cryptocurrency XRP, and it’s a payment settlement system and currency exchange network that can process transactions globally. Ripple can facilitate exchanges for a variety of fiat currencies or cryptocurrencies.
The pseudonymous creator of Bitcoin. No one knows the true identity of Nakamoto – or if it’s more than one person.
A unit of value on a blockchain that usually has some other value proposition besides just a transfer value (like a coin). Tokens can represent any asset, from commodities like gold or coffee beans, to loyalty points, real estate, or even other cryptocurrencies.
U - W
When a transaction is proposed, it is unconfirmed until the network has examined the blockchain to ensure that there are no other transactions pending involving the same coin. In the unconfirmed state, the transaction has not been appended to the blockchain.
A market where prices are fluctuating rapidly so it’s harder to predict what will happen next.
Programmer who invented Ethereum in 2015.
A digital location used to store crypto funds by storing private and public keys that provide access to your cryptocurrency holdings.
X - Z
This is the cryptocurrency of the Ripple digital payment network. The XRP ledger is a decentralized, public blockchain built for digital payments. XRP touts itself as a faster, more efficient way to power global payments. These tokens are much cheaper to purchase, at $0.62 per coin. Ripple crashed at the end of 2020 due to actions filed against the company by the SEC, causing the price to tank. It is predicted that the price will rise to roughly $1 by the end of 2022.
The process of generating the most returns possible on your crypto assets by putting them to work.
Zero-knowledge proofs enable the posting of private transactions to the blockchain while maintaining privacy by offering a way to confirm that the transaction was completed successfully without disclosing the private information utilized in the transaction.
Alternative phrasing for an unconfirmed transaction.