Cryptocurrencies have the potential to completely alter our perception of currencies. One day, they may become a legitimate form of payment in their own right worldwide. However, since there has been an explosion of cryptocurrency information and jargon, many people fall behind that crypto jargon even before making their first crypto investment.
If you’re considering investing in cryptocurrencies, you’ll want to know the basics and speak the language—of the “crypto-verse.” Everyone should understand some cryptocurrency terms before they get started—no matter how much money they’re planning to invest.
Below, you can find the nine most important crypto terms well-explained in plain language to get you started. But, keep in mind that if you want to know more and stay updated, you can always visit a professional crypto blog that has all the information you need.
Crypto Address
Every cryptocurrency coin is identified on the blockchain by a unique address. This string of letters and numbers acts as an identifier for a given amount of currency. Every transaction made with a particular cryptocurrency is recorded in this address, so it’s important to keep your wallet address private if you don’t want anyone tracking your transactions.
Blockchain
A blockchain is a decentralized digital ledger that records transactions across many computers in such a way that it is extremely resistant to modification of the data. Satoshi Nakamoto created the first blockchain in 2008, and it was adopted as a fundamental component of the digital currency bitcoin the following year, where it serves as the open transaction record.
Blockchains are capable of automatically recording information like transactions, contracts, and agreements because they are not controlled by any centralized authority. They use cryptography to process and verify transactions on their network.
Crypto Wallet
A cryptocurrency wallet is essentially a piece of software that stores the public and private keys required to access your coins (in case you forget them). It also acts as an interface with which you can interact with the blockchain. The wallet will have its own unique address which you need to know in order to send or receive payments.
Gas Fees
Gas fees are charged by the Ethereum network for every transaction that takes place on the blockchain. This fee is paid in ETH and goes directly to miners who verify each transaction against the current state of the blockchain.
The higher your gas fee, the faster your transaction will go through and get verified by miners. If you want your transaction processed quickly, then you’ll have to pay a higher gas fee.
Crypto Mining
Mining is a process by which transactions are verified and added to the public ledger, known as the blockchain, and also the means through which new tokens are released. Anyone with an internet connection and appropriate equipment can engage in mining. The process of mining entails grouping recent transactions into blocks and attempting to solve a computationally challenging puzzle.
A hash algorithm turns the information contained in a block into a short string of numbers and letters. The hash function is designed to produce an unpredictable output so that given the same input, it’s extremely unlikely to produce the same output.
Decentralized Apps
A decentralized application (dApp) is an application that runs on top of a blockchain network. The idea is that dApps provide increased transparency over other apps because anyone can access them and verify their authenticity. They are also not controlled by an entity, making them less susceptible to cyber-attacks and government censorship. Some examples of apps include CryptoKitties and EtherDelta.
Decentralized Finance (Defi)
Decentralized finance refers to financial services that are provided by software applications running on blockchains without any intermediaries or third parties involved in transactions. DeFi offers various benefits over traditional finance, including lower fees, greater transparency, and enhanced security measures.
Know Your Customer (KYC)
KYC is a process that requires businesses to collect and verify customer information, such as name, address, and ID. It’s similar to putting your credit card through online purchase and having to enter your billing address.
The KYC process is used by banks, exchanges, and other financial institutions to prevent money laundering and fraud. If you want to buy or sell cryptocurrencies on any exchange, you will need to complete the KYC process before you can begin trading.
Cold Storage
Cold storage refers to keeping cryptocurrency offline in a secure location. Cold storage is used as a security measure to prevent hackers from stealing your cryptocurrency. It’s also important because it keeps your private keys out of the hands of hackers who could steal them if they got into your computer or phone wallet. Cold storage options include USB sticks, paper wallets, hardware wallets, and more.
Final Thoughts
There are many cryptocurrency resources available online, and many are trustworthy and helpful. In addition, Twitter is an excellent resource for cryptocurrency enthusiasts. Start following like-minded individuals to learn more about the field and most of all, be sure to educate yourself on the topic of cryptocurrency before deciding if it’s something you want to do.