Cryptocurrency was the hottest investment of the 2010s. For most of the 2000s, it didn’t exist. Today, it’s hard to go a single week without a new digital currency making headlines. With Bitcoin now trading around $50,000 per coin, Coinbase having gone public in April, and Ethereum creating new millionaires as this article is being written, you’re definitely not alone if you’re considering getting started in action.
The problem is that cryptocurrency is complex and unfamiliar: if you want to succeed, you have to expect a steep learning curve. The first thing you’ll want to do is learn the language. To help you understand the weird jargon that makes the Bitcoin world go round, GOBankingRates has created a glossary that will serve as a guide to help you start your path to crypto mastery.
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Last updated: May 17, 2021
Bitcoin was the original cryptocurrency and remains the most famous, widely accepted, trusted and widely traded cryptocurrency in the world. In fact, it’s so important that all other cryptocurrencies are collectively known as “altcoin.” Altcoins have risen and fallen in the highly volatile crypto market, but the most popular of them right now is Ethereum, which has gone from $176 per coin to $4,000 in the last year. Binance Coin, Cardano, Tether and Dogecoin are some of the other big ones.
Blockchain is the decentralized and encrypted digital framework that makes cryptocurrency possible. It is defined as “a system in which a record of transactions made in Bitcoin or another cryptocurrency is kept on several computers linked in a peer-to-peer network”. It’s based on what’s called distributed ledger technology, which makes it impossible to edit a digital history while providing transparency to anyone with access to it.
BuiltIn makes a good analogy that anyone working on Google Drive will understand. Blockchain is similar to a read-only Google Doc that can be viewed simultaneously – but not edited – by anyone with access instead of each person having to download it independently.
With cryptocurrencies that can be mined, coinbase describes the transaction inside a block that pays the person who mined that block. The reward comes in the form of coins generated from scratch.
Coinbase with a capital C is important because it is the name of the largest cryptocurrency exchange in America by volume. Coinbase made history in April when it became the first exchange of its kind to go public, a milestone for cryptocurrency in general. It is now listed on Nasdaq.
A fork occurs when a digital currency changes its protocols. Periodically, developers make updates that result in forks. This has no impact on the average coin holder – unless it is a hard fork. Hard forks are protocol changes so radical that they create entirely new blockchains, incompatible with pre-fork blocks. Bitcoin Cash emerged through a hard fork into the original Bitcoin blockchain. Eventually, a new hard fork forced Bitcoin Cash to split into two new blockchains.
Initial Coin Offering
Just as companies raise money through initial public offerings (IPOs) when they go from private to publicly traded, startups can make their own fundraising debut through initial coin offerings, or ICOs. With ICOs, startups — usually in a space dealing with cryptocurrency, blockchain, or related technology — exchange tokens for hard, cold cash for investors. Sometimes these tokens function as a currency – at least within the startup’s ecosystem – but other times they simply represent a stake in the company.
Cryptocurrency miners develop and maintain essential components of blockchain ledgers. If successful, their work leads to the creation of new pieces, which they receive as a reward for their efforts. It’s not free money. Mining is an extremely complex and tedious job that is rarely profitable. This requires very sophisticated computers and consumes a lot of energy. Thanks to the wide availability of cheap electricity in this country, most cryptocurrency mining operations take place in China.
NFT stands for “non-fungible token”. They’ve been trending strongly throughout the new year, as NFTs continue to attract celebrity investors, sell for small fortunes at auction, and confuse everyone who isn’t in the know. They are similar to cryptocurrencies in that they are recorded on decentralized blockchains, but they are not mined and one is never the same value as the other, like Bitcoins or dollars are – This is what “non-fungible” means. These are digital representations of things like images, gifs, avatars, and playlists. By converting these items into NFTs and recording them on a blockchain, creators can protect their ownership rights while continuing to distribute their creations to the public.
The hype around NFTs: What are they? And what is their price?
Proof of Stake
Proof of stake is a consensus mechanism that blockchains use to grant permission to validate or mine a cryptocurrency based on the number of coins the miner already has. This is an important safety regulation in the mining world. The more coins a miner already has, the more mining authority they get. The idea is that miners who have a stake in the game will be less likely to launch an attack on a network.
Bitcoin Cash (BCH): How is it different from Bitcoin and what is it worth?
In one of the greatest mysteries in the history of money, the person or people who invented Bitcoin in 2008 remain completely anonymous to this day. Whoever it is, his name is Satoshi Nakamoto. Since Satoshi is traditionally a male given name in Japan, many people refer to Satoshi Nakamoto as “he”, but it could just as easily be a she or a they. There is also no way of knowing if he is Japanese. Satoshi Nakamoto is the founding father of Bitcoin, and is believed to have conducted enough early mining to now own 1 million Bitcoins. If it were true, Satoshi Nakamoto’s creation would have earned him $50 billion today.
To start: How to invest in cryptocurrency
If you’re thinking of getting into cryptocurrency, you’ll need a wallet to hold all that invisible money. Crypto wallets hold cryptocurrency in the same way that digital wallets like Apple Pay and Google Pay hold regular digital currency. The difference is that traditional digital wallets are convenient. On the other hand, crypto wallets are not optional. If you want to receive, send, own and spend Bitcoins and altcoins, you need to have a digital wallet. They can take the form of software like Exodus or physical wallets like Ledger Nano X.
If you’re getting into Bitcoin, you should aspire to become a whale one day. These are the very big players who have at least 1,000 Bitcoins in their wallet – or 1% of the Bitcoin world. Trading at around $50,000 per coin, 1,000 Bitcoins are worth $50 million – but some whales hold billions of dollars worth of BTC. An estimated 1,000 Bitcoin whales control 40% of the market. This gives a small group of whales the ability to move the entire market on their own.
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This article was originally published on GOBankingRates.com: Cryptocurrency Glossary: Defining Hot Topic Terms