In recent years, crypto trading has been booming. Investors are speculating the future possibilities of this new technology, which have driven most of the current market capitalization and valuations so far. Many see cryptocurrencies as the money of the future. This is likely to remain the case until a certain measure of price stability and market acceptance is finally achieved. Aside from the declared price of the cryptocurrency, investors seem to be relying on a perceived inherent value including the technology and network itself, the security of the cryptographic code, and the decentralized network.
The crypto market is about 11 years old and exclusively deals with digital assets. It operates 24 hours a day, seven days a week.
So, what is a Cryptocurrency?
Cryptocurrencies are digital assets that use cryptography, an encryption technique for security. Cryptocurrencies are primarily virtual currencies designed to buy and sell goods or services. They lack the intrinsic value as they are not redeemable for another commodity, like gold for example. Unlike traditional currencies, they are not issued by a central authority, which raises doubts about their legality and credibility among some investors. On the other hand, this defining feature of cryptocurrencies makes them theoretically immune to government interference or manipulation.
Cryptocurrencies are perceived as secure online payment gateway which are denominated in terms of virtual tokens. The term Crypto refers to the multiple encryption algorithms and cryptographic techniques that safeguard these virtual currencies. We can say that increasing popularity of cryptocurrencies is derived from its groundbreaking technological innovation.
Cryptocurrency Terms Every Trader Should Know
Cryptocurrency market has been a leading investment destination in the past couple of years. However, cryptocurrencies remain controversial even after a long way with regards to both technological advancement and increasing popularity. Some praise the cryptocurrencies stating that they are the future money or the next internet. While others still perceive cryptocurrencies as fraud. We can see that for every person claiming that cryptocurrencies are investment bubbles, there’s another person insisting that they represent the next generation of finance.
Cryptocurrencies enjoy significant advantages such as transparency, 24/7 accessibility, decentralization, security, and its great potential for appreciation. On the other hand, disadvantages of the market may include extreme market fluctuations and high uncertainty which makes it hard to predict future prices.
But if you’re looking to invest in the crypto market, here are the most important terms you should know first.
Blockchain is a system used to store or record information in a way that makes it difficult or impossible to be hacked, cheated, or changed. It is essentially a digital ledger of transactions that is distributed across the entire network of computer systems on the blockchain. Each block in the chain contains a number of transactions, and every time a new transaction takes place on the blockchain, a record of that transaction is added to every participant’s ledger.
Bitcoin (BTC) is the first blockchain-based cryptocurrency, created in 2009 by Satoshi Nakomoto. Since then, bitcoin has been attracting millions of investors and became the largest cryptocurrency by market cap. The virtual currency operates on a peer-to-peer network, blockchain, allowing users to make digital financial transactions without the need for a financial institution. BTC was first released online in 2009, and it has been growing in popularity ever since.
Altcoin refers to any cryptocurrency other than Bitcoin. The term comes from “alternative” and “coin” and is used to describe any group of cryptocurrencies, bitcoin is excluded.
A stablecoin is a cryptocurrency of which price is pegged to other assets such as fiat money or commodities like gold. A new form of cryptocurrencies that aims to keep prices stable, compared to the usual fluctuations seen in the prices of other common cryptocurrencies like Bitcoin and Ethereum. A stablecoin is usually referred to as a digital fiat currency. Tether (USDT) and USD Coin (USDC) are popular examples of a stablecoin.
The token is a unit of value that is built on a blockchain. It is a virtual currency token and represents a tradable asset for investment purposes.
The coin is a cryptocurrency that lives independently on a blockchain or network like Bitcoin and Ethereum.
An online software-based wallet for cryptocurrencies. Despite being more convenient for usage, this type of crypto wallets is more vulnerable to cyber-attacks and hacking than offline wallets.
A cold wallet is an offline cryptocurrency wallet that is not connected to any networks when not in use. It provides an additional layer of security and protection compared to the hot wallets. A cold wallet can be a physical device similar to a USB drive, also known as a hardware wallet or offline wallet.
It is the process of creating and adding new cryptocurrencies to a blockchain through solving complex cryptographic calculations that verify cryptocurrency transactions. A puzzle, known as hash, has to be solved in order to create the next block in the chain. Miners of cryptocurrencies are rewarded with tokens.
The crypto broker is an entity that acts as an intermediate between the trader and cryptocurrency market to facilitate buying, selling, and trading cryptocurrencies. A cryptocurrency broker trades your funds through a dealer network and is also known as over-the-counter (OTC) trading.
A crypto exchange is an online platform for traders to exchange cryptocurrencies. An exchange serves as a middleman between buyers and sellers enabling trading with a fee. Cryptocurrencies exchanges are either used for purchasing cryptocurrency for fiat money or exchanging cryptocurrencies. For example, exchanging bitcoin for another cryptocurrency.
Crypto exchanges are limited to digital currencies, allowing traders to own the cryptocurrencies directly. Meanwhile, brokers offer the advantage of providing a wide selection of trading securities, though you don’t own the currency.
Some experts refer to cryptocurrencies, especially Bitcoin, as digital gold based on the way it is being invested.
Decentralization means that no one computer or organization can own the chain. Instead, a distributed ledger via the nodes is connected to the chain. Nodes can be any electronic device that maintains copies of the blockchain and keeps the network functioning. Blockchains are typically decentralized networks that are not subjected to a central authority.
It’s a fee that developers and users should pay when using the Ethereum network. The gas fee is typically a compensation for the computing system consumed for verifying transactions on the network.
For cryptocurrencies, the market capitalization or market cap refers to the total value of all the coins that have been mined. The market cap is calculated by multiplying the number of traded coins by the current market price of the single coin.
Initial Coin Offering (ICO)
The Initial Coin Offering (ICO) is used to raise funds for a new cryptocurrency project. An ICO is similar to the Initial Public Offerings (IPO) in the stock market.
A Distributed Ledger is a database that records the origin of a digital asset and transactions, like the exchange of assets or data, among the participants in the network. Blockchain is simply defined as a decentralized database, managed by multiple participants known as Distributed Ledger Technology or DLT.
An airdrop is a marketing campaign that includes distributing cryptocurrencies or tokens to multiple wallets. It is usually implemented to promote awareness of a newly added cryptocurrency.
Non-Fungible Token (NFT)
A non-fungible token or NFT is a unit of data stored on a digital ledger that represents the ownership of unique digital items. NFTs are unique digital assets that can be bought and sold like any property but with no tangible form of their own.
A Smart contract is a computer program that enacts the terms of contracts between buyers and sellers automatically based on its codes. It is programmed to automatically execute and document the terms of the agreement. With smart contracts, transactions can be automated, which increases the process efficiency and speed even further. Smart contracts reduce human intervention and reliance on third parties.
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