10 Crypto Terms Everyone Needs to Know
It's no secret that cryptocurrency has changed the world and people around it. The rising popularity comes with a lot of new terms, concepts and things that many have never heard of. As it continues to grow, it's more important than ever to understand what it is and why it matters. We compiled a glossary of essential terms to help you learn what's what in the crypto world.
Blockchain is a type of database. A blockchain consists of a continuously growing list of records, called blocks, which are linked and secured using cryptography (a cryptographic hash function). Each block typically contains a hash pointer as a link to the previous block, timestamp and transaction data.
The implementation of blockchain technology for financial transactions could potentially reduce infrastructure costs for banks and other intermediaries, increase transparency in transactions, improve security against fraud or tampering with digital data, and provide financial opportunities for people in developing countries.
If you're involved in cryptocurrency, you've likely heard the term "DeFi" at least once. The abbreviation stands for "decentralised finance," and it's been a topic of increasing interest within the blockchain space over the last year.
Decentralised finance is a blockchain-based financial ecosystem that relies on smart contracts to provide trustless financial services. These smart contracts allow users to trade cryptocurrencies, take out loans and swap tokens without needing to rely on any centralised party or middleman.
While this technology is still in its early stages, DeFi has exploded in 2020, with many people interested in taking part. If you are interested in DeFi but don't know where to start, check out our DeFi portfolio. It includes smart contract protocols, lending platforms as well as decentralised exchanges.
Public and private keys, and addresses
You need a public and private key to use a cryptocurrency. The public key is like your bank account number, while the private key is like your personal access code to your bank account. Together they are used to confirm that you own the funds in question and allow you to send them (cryptocurrency) as payment. The two keys work together but cannot be used interchangeably. The public key is how other people can send crypto to you, while the private key allows you to spend crypto from your wallet.
NFT stands for non-fungible token, which means it's a unique digital asset stored on the blockchain. Fungibility is the quality of being able to exchange one thing for another. A $10 bill, for example, is fungible because you can replace it with any other $10 bill. An NFT has no such replacement: there's only one of them, so when you sell or trade an NFT, you don't get something fungible in return; instead you receive a different NFT.
An example of an NFT is the digital trading card for your favourite e-sports star. Since an athlete only makes one card and that's it, their fans will value these cards based on their scarcity and uniqueness.
Another growing use case of NFTs relates to digital art. Musicians like Kings of Leon are creating virtual concerts as experiences that people can buy just once as an NFT—very much like a ticket to a live event!
Mining is the process of validating transactions, which are a series of lists of Bitcoin or other cryptocurrency payments. Miners validate the transactions by solving complex math problems and then add the completed block to the blockchain. For their efforts, they are rewarded with newly-created coins. Mining machines do all of this work using a proof-of-work algorithm.
HODL is a term you’ll see thrown around on crypto forums and by cryptocurrency investors. It originated as a misspelling of “hold” in a Bitcoin forum post, but gained popularity after people used it to express their belief in the longevity of cryptocurrencies.
The idea behind hodl is that if you believe in a coin, then you should hold onto it no matter what happens to its price. Hodling means that even if the price goes down, you won't be so easily swayed by fear or anxiety to sell your coins at a loss. Hodlers are strongly committed to holding onto their coins for the long run.
Altcoins and Tokens
Altcoins are alternative cryptocurrencies to Bitcoin. Pretty much any cryptocurrency except Bitcoin is an altcoin. Tokens, however, are a little different.
Tokens are built on top of existing blockchains and don’t live on their own blockchain. A good example of this would be Ethereum, which has two native tokens: Ether (ETH) and Gas (GAS). ETH is the token that powers the Ethereum network, whereas GAS is used to power transactions within its blockchain ecosystem.
Smart contracts are self-executing agreements that are written in code and run on the blockchain. They’re automated, which means they can do exactly what they’re told to do. For example, if you want to buy a house from someone and you want to pay in cryptocurrency, you could use a smart contract between both parties to execute the transaction automatically once all conditions have been met. If Mary agrees to sell her house for 1 bitcoin and Bob pays 1 bitcoin no later than December 21st, then the smart contract will transfer ownership of the house from Mary to Bob once it is paid for.
DAO stands for a decentralised autonomous organisation. This is essentially an organisation that runs and operates on a blockchain network, using smart contracts to manage members, assets, funds, and so on.
In theory, DAOs can be used to decentralise any type of business model. However, there are many challenges involved in setting up a DAO. For example: how do you sort out issues of accountability? What happens when members disagree with decisions made by the DAO? What if someone wants to leave the DAO? These are some of the questions that still need answers before DAOs are widely adopted in the crypto space. Nevertheless, some examples of existing DAOs include DigixDAO and MakerDao -- both of which use smart contract technology to tokenise real-world assets like gold and cash respectively.
Tokenisation is the process of representing something of value with a digital token. Generally speaking, anything can be tokenised—a piece of art, a car, or even your home. In cryptocurrency terms, gold, oil, stocks and baseball cards can all become tokens that are traded on crypto exchanges.
Tokens do not have to be backed by an asset (like gold) in order to carry value. They can also create value themselves. Crypto tokens (also called cryptocoins) are cryptographic pieces of software that validate the existence and ownership of digital assets in addition to allowing the transfer of those assets between two parties—and they're what power modern cryptocurrencies like Bitcoin and Ethereum.