Looking to invest in cryptocurrency but terms like bitcoin, etherium blockchain, gas, minting and mining seem too confusing to you? If your answer is yes, then you must first learn the dictionary commonly used in the cryptocurrency ecosystem.
Let’s start with ‘cryptocurrency’. It is a type of currency that is encrypted and digitized for trading. It uses algorithms to monitor the creation and transfer of funds between buyers and sellers. All crypto transactions take place without the involvement of financial intermediaries like banks.
10 cryptocurrency terms to know before you start investing :
That’s not all. There are many steps in the whole process of cryptocurrency transactions that any entrant should have a thorough knowledge of.
Get acquainted with these crypto terms before entering the marketplace :
When a verified cryptocurrency transaction occurs between buyer and seller, it is recorded on a digital ledger called a blockchain. Each transaction is stamped and coded individually with the help of a virtual laser.
Blockchain is the underlying technology used in cryptocurrency.
You can think of it as a series of blocks built on top of each other. A blockchain network will continue to add data related to cryptocurrency or other transactions, making it an endless and unchanging process. When it reaches its power, a new block is added to the chain.
It can be accessed on any laptop or computer, using the Internet. This means that blockchains are decentralized and not confined to one location, laptop or network.
Fiat refers to money that is issued and recognized by the government, such as the US dollar, euro and pound. It is also disseminated through banks.
In contrast to cryptocurrencies, Fiat currency is centralized and regulated by a central authority.
If you want to transact Fiat currency on a blockchain network, you will need a centralized organization to protect your funds.
In this type of transaction, you will get a ‘token’ which means you owe money. The value of each token depends on the current market value. It fluctuates every day.
Tokens are cryptocurrencies that are not part of the blockchain Ether, for example, is the native currency of the Ethereum blockchain, but the blockchain itself supports a number of other coins. So, ether is one cryptocurrency, others are crypto tokens This makes the token a non-removable and transferable value unit.
Additionally, tokens can be created without creating a blockchain, as the support function can be provided by a different party. They can be utility tokens or security tokens. The former is used for transactions within an ecosystem. The latter is more like shares issued by a company.
Bitcoin and altcoin :
Bitcoin is a cryptocurrency that is increasingly becoming a recognized payment system alongside Fiat Money. Transactions using Bitcoin have no third party involvement and, unlike Fiat Money, are generally free from regulatory processes. In addition, it can be given as a reward to blockchain miners for trading transactions as an asset in cryptocurrency exchanges as well as transaction verification.
Altcoin is a digital currency that is not Bitcoin, meaning it is a centralized digital currency that includes banks and other financial intermediaries in addition to buyers and sellers. It is a combination of two words – ‘alternative’ and ‘currency’.
Each altcoin has its own rules and regulations, features and specific uses. Non-bitcoin crypto contains the mining’s second-most popular currency, Ethereum, as well as the regular addition of thousands of coins, whose market value is very low.
If you want to invest, financial experts recommend investing only in larger, more popular cryptocurrencies.
You will need a common platform to buy or sell cryptocurrencies. Think of an exchange that plays that role as a digital marketplace
You can use this online service to change your digital assets or exchange your crypto for fiat depending on their market value. You can even trade one cryptocurrency for another.
Like traditional brokerage, you can deposit or cash using NetBanking, your debit card, bank transfer and other standard deposit methods enabled by the exchange.
Some Indian crypto exchanges include Unocoin, CoinSwitch, WazirX and CoinDCX.
They include different fee structures for transactions. The exchanges can also differ based on the currency conversions they allow.
The wallet only stores the location of your cryptocurrencies in the blockchain; It doesn’t hold every coin. It enables you to store and retrieve your digital currencies and comes with a unique code that represents your blockchain address.
Although the wallet address is public, it has a number of ‘private keys’ that indicate owners with account balances.
There are two types of crypto wallets in the crypto landscape – hot and cold. Although a hot wallet is connected to the Internet and is more susceptible to online hacking, a cold wallet works without the Internet and is considered a safer way to secure your crypto investments.
In fact, Cold Wallets come with specially designed USB drives that store your crypto for later use. Two well-known cold wallets are the Laser Nano X and the Treasure Model One. Laser Nano X is known to support 23 different types of cryptocurrencies, among other additional features.
Gas is a fee charged for operating on the Ethereum network. It is used to allocate resources for Ethereum virtual machines so that decentralized applications such as smart contracts can be safely self-edited.
For non-innovators, smart contracts are blockchain programs that are implemented when certain, predefined conditions are met. They can automate either a workflow or a contract, without any time loss or intermediation.
Although some operations cost as little as 3 to 10 gas, a full transaction costs 21,000 gas. It depends on the demand and supply between miners and network users. Gwei is charged with gas, which is a small fraction of ether.
Minting is the creation of a new currency for circulation in the cryptocurrency ecosystem. It may sound like mining, but there are fundamental differences at a deeper level. The term mining is commonly used to refer to a process known as proof-of-work, which is basically the legitimacy of a block transaction (or work) through problem solving.
Most cryptocurrencies rely on a reliable mining system that solves complex math puzzles to secure and enable a network as well as create new tokens. This is done with the help of computing resources like computers.
The other method is known as stacking. It follows a proof-of-stack mechanism where a certain amount of pre-existing cryptocurrency is intercepted by those who want to verify the transaction for profit.
DeFi means decentralized money. This includes making financial transactions without any exchange, brokerage, bank or any financial institution.
This means that cryptocurrencies are included in the digital currency exchanges. Also, special cryptocurrency transactions are done only between two parties without intermediaries, i.e. between the buyer and the seller.
Some well-known DeFi projects have decentralized exchange protocols, which seamlessly automate crypto transactions between buyers and sellers.