Dealing in cryptocurrency may be daunting to someone who’s doing it for the first time. Here you are, doing your own research, and somewhere along the way it all sounds Greek to you. Here are the some of the words beginners in crypto investment must know and their simplified definitions.
Bitvo.com defines cryptocurrency or crypto as “digital money with which transactions are verified and records are maintained by a decentralized system using cryptography. Instead of using money created by a government and storing it in a bank, crypto is a currency that can be traded directly with no middlemen or central authority.”
Fiat is any government-issued currency such as the US dollar, the British pound, and the Japanese Yen.
Traditional banking works through an authority as a central point. Crypto works as a decentralized network, meaning there’s no one authority.
Blockchain is a huge file of information which lists all transactions that were ever made. It’s essentially an immense digital ledger, akin to a physical ledger that a bank uses to record transactions.
Alternative coins or altcoins are digital currencies apart from Bitcoin.
A crypto exchange is an online platform where one can buy or trade cryptocurrencies and fiat. A centralized exchange (CEX) is operated by an entity that has full control over it. They receive and execute orders on behalf of third parties to buy, sell, convert, or transfer crypto and/or fiat. A decentralized exchange (DEX) works without any entity over it and are considered true peer-to-peer platforms.
This represents crypto wallets. In order to send crypto, you would need the recipient’s digital address which is usually a sequence of 27 to 34 letters and numbers.
Public and Private Keys
A public key is similar to a bank account number which you use to be able to make transactions. A private key is like your PIN, which only YOU should know and it’s used to access your funds on the blockchain.
This is the complicated process by which new blocks of crypto are validated and entered into the blockchain. The people who run the computers to process and validate all transactions are called miners.
Proof of Work (PoW)
This refers to the work that miners to keep blocks verified. It’s the original consensus algorithm of the blockchain network used to confirm transactions and add new blocks to the chain (cryptopotato.com).
It’s a report designed to give information about the specifications of a crypto project written by the project’s team.
Gas or gas fee is the price you pay to make a transaction on the blockchain. You are essentially paying for a miner to search and receive crypto for you. The price depends on how fast you want to complete the transaction – a higher price for faster transaction speed, a lower price for slower transaction speed.
It’s short for “hold on for dear life.” It was originally a typo on a message board thread and has evolved into counseling investors to hold crypto long term despite any short-term volatility.
This one is short for “fear of missing out.” It’s an emotional response that may cause crypto investors to buy a certain crypto because everyone else seems to be earning high returns.
FUD is short for “fear, uncertainty, doubt.” This refers to negative information on a certain coin or to crypto in general that may lead investors to doubt its value.
Know your customer (KYC) is a form of identity verification used by crypto exchanges as imposed by regulatory agencies to deter money laundering and terrorist funding. This may include but not limited to a valid ID scan, proof of address, and online webcam verification.
Pump and Dump
This happens when a group of people or entities agree to buy a certain crypto, create a demand in the market pumping the value. Once the value goes up, the group will then dump it in order to make a profit.
This a place used to store, send, and receive crypto, just like what your wallet does in real life. A hot wallet is used online and makes transactions convenient. A cold wallet is offline storage of your crypto that’s less convenient than a hot wallet. Crypto investors are recommended to have both.
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