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HODL. DApp. Ether.
No, these are not words from a newly discovered foreign language. They are one of the many new and important terms in the language of cryptocurrency.
Cryptocurrency is not just a novel investment option and in many ways represents a very different world than traditional stocks and bonds. Between unfamiliar acronyms, emerging technology, and keeping up memes and tweets, it takes time for even seasoned traditional investors to learn the basics.
As with any investment, it is important to understand exactly what you are investing in before you begin. This is especially true when it comes to a speculative – and still evolving – asset like crypto.
There are a few requirements that we recommend before you start shopping in cryptocurrencies, such as: And as mentioned before, you should only ever invest in crypto what you are ready to lose, and experts recommend that you devote no more than 5% of your portfolio to these digital assets.
But another point to add to your checklist is at least a beginner’s understanding of what you’re getting into, including the differences between crypto and other investment strategies and the various factors that can affect a cryptocurrency’s market value.
Here are some of the terms and phrases that will help beginners better understand the world of crypto investing.
Crypto Terms You Should Know
Any coin that is not Bitcoin. Altcoins can be anything from the second most popular coin, Ethereum, to thousands of coins with very little market value. Experts say that as an investment, you should largely stick with the larger, more popular cryptocurrencies.
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The first and most valuable cryptocurrency launched on January 3rd, 2009. While its value has risen steadily since then, it has seen wild swings. In the past few months alone, the price of Bitcoin has fluctuated from a record high of $ 60,000 to below $ 30,000.
A peer-to-peer electronic cash system formed from a fork of the original bitcoin. While Bitcoin is widely accepted as too volatile to be useful as a currency, Bitcoin Cash is better optimized for transactions.
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Data groups within a blockchain. On cryptocurrency blockchains, blocks consist of transaction records when users buy or sell coins. Each block can only contain a certain amount of information. As soon as this limit is reached, a new block is formed to continue the chain.
A digital form of record keeping and the underlying technology behind cryptocurrencies. A blockchain is the result of sequential blocks that build on each other and create a permanent and immutable ledger of transactions (or other data).
A representative digital store of value that lives in a specific blockchain or cryptocurrency network. Some blockchains have the same name for both the network and the coin, like Bitcoin. Others may have different names for each, like the Stellar blockchain, which has a native coin called Lumen.
A popular centralized cryptocurrency exchange. Coinbase recently made history as the first cryptocurrency exchange to go public on the Nasdaq.
Cool bag / cold store
A safe way to store your cryptocurrency completely offline. Many cold wallets (also called hardware wallets) are physical devices that are similar to a USB drive. This type of wallet can help protect your crypto from hacking and theft, although it also comes with its own risks – such as losing it along with your crypto.
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A type of currency that is digital and decentralized. Cryptocurrency can be used to buy and sell things, or as a long-term store of value.
The principle of distributing power from a central point. Blockchains have traditionally been decentralized because they require majority approval from all users to operate and make changes, rather than a central authority.
Decentralized finance (DeFi)
Financial activities carried out without the involvement of an intermediary such as a bank, government, or other financial institution.
Decentralized applications (DApps)
Applications designed by developers and deployed on a blockchain to perform actions without intermediaries. Decentralized financial activities are often handled using decentralized apps. Ethereum is the main network supporting activities in decentralized finance.
Experts sometimes compare certain cryptocurrencies to real gold based on how it can be stored and increased in value. Bitcoin is commonly referred to as digital gold.
Ethereum, the second largest cryptocurrency by trading volume, is a crypto network and software platform that allows developers to create new applications and has an associated currency called ether.
A digital marketplace where you can buy and sell cryptocurrencies.
When the users of a blockchain make changes to their rules. These changes to a blockchain’s protocol often result in two new paths – one that follows the old rules and a new blockchain that splits off from the previous one. (Example: a fork in Bitcoin led to Bitcoin Cash).
A fee that developers have to pay to the Ethereum network to use the system. Gas is paid for in ether, Ethereum’s native cryptocurrency.
The first block of cryptocurrency ever mined.
Stands for “Hold On for Dear Life”, although the term comes from a user typo in a Bitcoin forum in 2013. It refers to a passive investment strategy where people buy and hold cryptocurrency – instead of trading it – in the hopes that it will increase in value.
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A function written in Bitcoin’s code that halves the amount of new Bitcoins in circulation after a certain number of blocks (usually every four years). The halving can have an impact on the price of Bitcoin.
A unique sequence of numbers and letters that identify blocks and are tied to crypto buyers and sellers.
A software-based cryptocurrency wallet that is connected to the internet. While these wallets are more convenient for quick access to your cryptocurrency, they are a little more vulnerable to hacking and cybersecurity attacks than offline wallets – just as files you store in the cloud are more easily hacked than those in a safe are locked at home.
Initial Coin Offering (ICO)
A way to raise funds for a new cryptocurrency project. ICOs are similar to initial public offerings (IPOs) of stocks.
In the case of cryptocurrency, the market capitalization refers to the total value of all coins mined. You can calculate the market capitalization of a crypto by multiplying the current number of coins by the current value of the coins.
The process of making new cryptocurrency coins available and keeping the log of transactions between users.
A computer that connects to a blockchain network.
Non-fungible tokens (NFTs)
Non-fungible tokens are units of value that are used to represent ownership of unique digital items such as art or collectibles. NFTs are most commonly held on the Ethereum blockchain.
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Peer to peer
Two users interact directly without a third party or intermediary.
Your wallet address, which is similar to your bank account number. You can share your wallet public key with people or institutions so they can send you money or withdraw funds from your account if you authorize it.
The encrypted code that enables direct access to your cryptocurrency. As with your bank account password, you should never reveal your private key.
The pseudonymous creator of Bitcoin. Nobody knows the real identity of Nakomoto – or whether it is more than one person.
An algorithmic program that automatically executes the terms of the contract based on its code. One of the main value propositions of the Ethereum network is its ability to execute smart contracts.
Stablecoin or Digital Fiat
A stablecoin pegs its value to another non-digital currency or commodity. A digital fiat represents a fiat or a government-supported currency on the blockchain. (Example: Tether pegged to the US dollar)
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A unit of value on a blockchain that normally has another value contribution in addition to a value transfer (such as a coin).
Programmer who invented Ethereum in 2015.
A place to store your cryptocurrency holdings. Many exchanges offer digital wallets. Wallets can be hot (online, software-based) or cold (offline, usually on a device).