More than the event that recently happened in the Academy Awards, the word on the street has been about “cryptocurrency” or “the blockchain.” Key phrases like; “How to get started with cryptocurrency?” “What Is cryptocurrency?” “Is cryptocurrency a risky investment?” “What is NFT?” and others have been part of the most searched questions online.
If you are interested in understanding how the crypto world works, you need to keep reading. To better understand how to navigate the blockchain, you need to acquit yourself with the common terminologies within the sphere. This post was created to launch you into the world of cryptocurrency, and all that comes with it by breaking down the most used terms.
Cryptocurrency
A cryptocurrency is a digital or virtual currency protected by encryption, making counterfeiting and counterfeiting practically impossible. In addition, cryptocurrencies are distinguished because they are not issued by a central authority, making them potentially impervious to government intervention or manipulation.
Smart Contracts
Smart contracts, which are a crucial component of the Ethereum blockchain and NFTs, are standard legal contracts expressed in computer code. Like traditional legal contracts, smart contracts hold several parties responsible for something, but instead of using words, they use code to instruct each participant. Before approving the conditions of a contract, both parties can examine and approve the code, ensuring complete transparency.
Blockchain
A blockchain is recognized as a digital ledger containing a record of all cryptocurrency transactions. ‘Blocks’ are what make up these transactions. When a block fills up, another is built, and so on. By design, certain blockchains have a fixed number of blocks, whereas others have an endless market capitalization. The ledger on a blockchain is not stored in a central location. It is instead repeatedly copied on many computers and servers all around the world. As a result, it’s seen as decentralized. Even though activities on the blockchain are decentralized, it has become a bit traceable on KYC-compliant centralized trading platforms.
Know Your Customer (KYC)
The term “Know Your Customer” (KYC) refers to the process of verifying your identity. If you buy cryptocurrency in a more traditional way, it will almost certainly come up. To prevent and mitigate money laundering and terrorist financing, regulators mandate identification background checks for all new banking clients. Cryptocurrency financial regulation is going to stay, so expect to hear that acronym a lot more as governments try to link blockchain transactions to residents.
Crypto wallet
Your coins are saved in a cryptocurrency wallet. Seeds, keys, and addresses are required for your wallet to work effectively. Hardware and software wallets are two different types of wallets. A software wallet is something like a smartphone app where you store your cryptocurrency. While a hardware wallet functions without the internet.
Cryptocurrency Exchange
Cryptocurrency Exchanges are platforms where you may buy and sell digital currencies. The pricing of cryptocurrencies on exchanges is based on current market prices. It operates just like a stock exchange does.
Decentralized Finance
Decentralized finance enables anybody to participate in a fair and transparent financial system. It uses blockchain technology to give unbanked people access to financial and banking services. By allowing people, merchants, and corporations to perform financial transactions using developing technologies, decentralized finance eliminates intermediaries. Peer-to-peer financial networks that use security protocols, connectivity, software, and hardware developments are used to achieve this.
Centralized Financed (CeFi)
Banks, corporations whose ultimate objective is to make money, hold your money under centralized finance. All crypto trade orders are processed by a central exchange in centralized finance (CeFi). The central exchange is run by individuals who manage the funds. You don’t have access to your wallet since you don’t have a private key.
Crypto Address
The blockchain uses unique addresses to identify cryptocurrency coins. The blockchain can be likened to a GPS system and your cryptocurrency address to be a specific mailing address. There is no way to keep a coin without an address, and the blockchain cannot authenticate or verify its existence without one. As a result, you can’t own a coin without a valid wallet address.
Altcoins
All coins that were launched after Bitcoin are known as Altcoins.
Public Key
Think of your account number when you think of the public key. A public key is a string of characters you give out to receive cryptocurrency.
Private Key
This is the crucial string of numbers and letters that you must keep secret. You might lose your funds in a matter of seconds if someone gains access to your private key. They might be shared with you or stored in the blockchain, depending on the type of wallet you are using.
Fiat
Fiat currency is usually not backed by any commodity, and it is supported by the government (like gold). Do you have any US dollars or Pounds in your wallet? Fiat money is what it’s called. The worth of US dollars is totally determined by our collective belief in the US government’s institutions. Your fiat will collapse if the United States collapses.
Mining
Mining is the process of validating new blockchain transactions. When someone gives computer processing power to help a miner solve an encryption problem, new blocks are created per action, and they are rewarded with crypto.
The crypto world is an interesting and rewarding sphere that will drive future innovations, so it’s better to start getting familiar with these terms.
