Ten years ago, cryptocurrencies were just an unknown concept of decentralized finance. Rare enthusiasts participated in crypto trading and ICOs.
Later we saw several BTC price jumps, altcoin season, Defi boom, and probably NFT hype.
Still, cryptocurrency is an investment option and a world completely different from traditional stocks and bonds.
As with any other investment asset, you need to understand what you are investing in before starting.
Here are a few basic terms to help newbies better understand the world of crypto.
Crypto terms you everyone should know:
Blockchain:
Thanks to cryptographic algorithms used by blockchain, it's difficult and technically impossible to change, hack or deceive recorded information.
You may have heard that blockchain is also called a distributed ledger. That means that records are duplicated and distributed across a complete network of computers around the globe.
Every network participant has a copy of all the records.
The information is stored online; no single server nor a single authority is controlling the blockchain.
Each block in the chain contains several transactions. Once a new transaction appears, a new record is added to the ledger.
Blockchain is a DLT where every record goes with an unchangeable cryptographic signature. This signature is called a hash.
What's more, transactions are recorded in s strict chronological order.
If one block in the chain differs somehow, it would immediately become evident that it has tampered.
The system checks and compares copies from all the connected computers to quickly find the mistake.
Bitcoin (BTC) is a cryptocurrency, meaning this is virtual cash.If hackers want to damage the blockchain system, they will have to change every block in the chain across all distributed versions, which means all computers are connected.
Blockchains are constantly growing as blocks are added to the chain. This way, they greatly enhance the security of the ledger.
Bitcoin:
You can send and receive BTC for far distances and in a short time without intermediaries like a bank.
Generally, it's like the online version of cash.
Cryptocurrencies are recognized as a middle of the exchange, meaning you can exchange them for traditional fiat funds or even use them to buy products and services.
Still, they're only a few shops accepting Bitcoin.
Also, some countries haven't recognized BTC as a currency or asset, and governments and banks prohibit it.
Each bitcoin is a computer file that you can store in your digital wallet - it can be applied on a smartphone or computer.
People can send bitcoins and another crypto to your digital wallet, and you can send them to other people.
But remember that you can share your public wallet key, your address, but you should always keep your private key a secret, which is your digital signature.
Crypto mining:
Crypto mining is a process of extracting digital coins by solving cryptographic equations. You need a powerful computer for that.
The solution involves validating blocks of transactions and adding new records to a ledger.
Mining supports peer-to-peer cryptocurrencies by verifying and sequencing the transactions.
Noteworthy, blockchain wallets are anonymous, so a miner never knows who the initiator and recipient of the transaction are.
Miners, who are usual network participants, use special computer hardware that generates new blocks of transactions.
This requires much electricity and computer power, so, in turn, miners get the extracted coins.
After Bitcoin's success, many digital projects try their strength in building blockchains and creating their cryptocurrencies.If a miner solves a block first, he gets the block reward, more significant than the reward for confirming a transaction.
Altcoins:
Most altcoins aim to solve Bitcoin's perceived weaknesses, and some of them offer competitive advantages, like better scalability.That's how we get altcoins.
They took their name as an alternative coin to BTC.
The first altcoins built on Bitcoin were Bitcoin Cash (BCH) and Litecoin (LTC).
Check how to sell Litecoin with CEX.IO, a leading UK-based crypto exchange.
Tokens:
Another common meaning of crypto token is a crypto asset that runs on top of another cryptocurrency's blockchain.Technically, the name token is just another word for cryptocurrency. It takes on slightly more specific meanings when used in different contexts.
For example, any cryptocurrency other than Bitcoin and Ethereum is usually called a token.
Most of the DeFi projects are built on Ethereum, so their native currencies are called tokens.
Stablecoins:
Stablecoins were created as a simplified and stabilized means of crypto transactions. Their price is much more fixed compared to other cryptos.
This is because their value is pegged to other assets, mostly fiat currencies like the US dollar.
Thus, owners of stable coins enjoy the benefits of crypto assets without excessive volatility.
After all, most companies are not willing to accept highly volatile crypto assets since it's hard to predict their value changes.
Non-Fungible Tokens (NFT):
Non-fungible tokens are also virtual assets. However, unlike Bitcoins or Ethers, every NFT is unique.
When someone creates or mints a non-fungible token, no one can then copy, edit, delete, or in any way alter it.It contains the identifiers of the physical or virtual item and the ownership rights on it.
NFTs are unique properties and, therefore, cannot be divided into parts.
You can buy, sell and exchange NFT, but as an item, not digital cash.
Yet, someone can create an NFT with the same characteristics.
As a rule, the NFT history can be traced back to the creator. This makes them more reliable and allows the owner to generate residual income.
There are many crypto platforms to buy these tokens, sell those you already own, or even create a new one.
You can check the most expensive NFT to compare their potential to grow in price.
If you still have any question, feel free to ask me via comments.
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