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31 Important Cryptocurrency Terms to Know Before You Invest

What are the most important cryptocurrency terms to know? Altcoin Bitcoin Block and Blockchain Burning Coin Cryptocurrency Decentralized Finance (DeFi)...

By | 04/11/2022 8:56AM

31 Important Cryptocurrency Terms to Know Before You Invest

What are the most important cryptocurrency terms to know?

  1. Altcoin
  2. Bitcoin
  3. Block and Blockchain
  4. Burning
  5. Coin
  6. Cryptocurrency
  7. Decentralized Finance (DeFi)
  8. Decentralized Applications (DApps)
  9. Decentralized Autonomous Organization (DAO)
  10. DYOR
  11. Exchange
  12. FUD
  13. Gas
  14. HODL
  15. Initial Coin Offering (ICO)
  16. Market Capitalization
  17. Mining
  18. Mint
  19. Multichain
  20. Node
  21. Non-fungible Tokens (NFTs)
  22. Play-to-Earn (P2E)
  23. Public Key and Private Key
  24. Public Ledger
  25. Seed
  26. Smart Contract
  27. Stablecoin or Digital Fiat
  28. Staking
  29. Token
  30. Wallet
  31. White Paper

DYO, HODL, ICO, NFTs.

Many new terms are floating around thanks to the ever-changing landscape of cryptocurrency. Far from its humble beginnings, it is no longer a simple way to bring your money online — it’s now a whole world of commerce and utility. Before diving in and putting your hard-earned money on crypto, you have to understand the basics.

Here are some important cryptocurrency terms to know — essentials for beginners before they invest! Going through these terms may help you make sound decisions, facilitate future research, and give you a better understanding of the value behind a still evolving asset like crypto.

Altcoin

Simply put, this is any coin that is not Bitcoin (BTC). Altcoins can be anything like popular options on the market — like Ethereum (ETH) — to even the least known coins with little market value.

Since Bitcoin launched in 2009, thousands of altcoins have been created. Some, like Avalanche (AVA) shape industry trends and present valuable services, while other coins use societal trends (read: memes) to generate interest.

Bitcoin

The first cryptocurrency ever made, it was first made to be an electronic peer-to-peer cash system. Now, it’s one of the most valuable digital assets to own — the price of just one Bitcoin has reached record highs of $60,000 in recent years.

Block

Blocks are groups of data, made up of transaction records of all users on a platform or cryptocurrency. It stores data as users buy or sell coins. Each block can only hold a certain amount of data, and once it reaches its limit, a new one is formed. This creates a chain — known as a blockchain.

Blockchain

Blockchain

The underlying tech behind cryptocurrencies, and the key to the utility and security of using cryptocurrencies. A blockchain is a digital form of record-keeping and is created by sequential blocks that build upon one another.

Some blockchains have a limited number of blocks by design, while others may have infinite capacity. There is no one location where a blockchain is stored — rather, it is stored and copied repeatedly on millions of computers and servers all over the world. Thus, a blockchain is a public and unchangeable record of all transactions and relevant user data.

Burning

To preserve the value of cryptocurrencies, a “burning” mechanic is used. This happens when cryptocurrencies are sent to a wallet that can only receive them, but not send them to other wallets. This creates a deflationary (also known as scarcity) impact — ensuring fewer coins or tokens are in circulation.

Coin

Represents the digital value that is given to a blockchain or cryptocurrency (Bitcoins and altcoins). Some blockchains use the same name for both the network and the coin, such as Bitcoin (BTC). Others may use different names for each, such as the Cardano blockchain that has a native coin called ada.

Cryptocurrency

A digital and decentralized currency. Cryptocurrency nowadays can be used to buy and sell things — even in the real world. It can also be used as a long-term store of value.

Decentralized Finance (DeFi)

Decentralized Finance (DeFi)

The main purpose of cryptocurrency is to facilitate decentralized finance (DeFi). Cryptocurrency allows financial activities to happen without the need of an intermediary — such as a bank.

Blockchains and cryptocurrencies can do this because they rely on majority approval from all users to operate and make changes, rather than a central authority. This ensures secure, acceptable, and public transactions will always be made.

Decentralized Applications (DApps)

These are applications deployed on a blockchain, and carry out actions without intermediaries. Trades and other activities often use DApps.

There is no one-size-fits-all description of what a DApp can do — it can perform any function that its developers and users wish. But, a majority have a few commonalities: they are open-source, decentralized, follow protocols, and are incentivized. Users who help the DApp as a validator (someone who checks transactions on a blockchain) are rewarded with tokens.

In theory, any DApp can become as valuable as any other company or product.

Decentralized Autonomous Organization (DAO)

Traditionally, users could vote on changes into a blockchain to overcome issues. A DAO allows this through a consensus — all users who can vote on governance issues can decide on the DAO’s course of action. Imagine a corporate meeting, where shareholders take votes on how the business should be run.

DYOR

Stands for “Do Your Own Research.” It’s a common phrase used by cryptocurrency enthusiasts to encourage newer users to do their due diligence before investing. DYOR simply means to research and understand a project or cryptocurrency before putting your money into it.

Exchange

This is a digital marketplace where you can buy, sell, and trade cryptocurrency. Popular exchanges include Binance and Coinbase.

FUD

Stands for “fear, uncertainty, and doubt.” FUD is sometimes used when users air speculations and concerns about new cryptocurrency offerings or projects. Other times, FUD can be used to manipulate the market for or against certain cryptocurrencies.

Gas

Whenever you make a transaction on a blockchain, you have to pay something called a gas price. This is essentially the energy cost of using a blockchain. Some require higher fees for faster and safer transactions. This is one of the biggest challenges of joining cryptocurrency markets. But, some blockchains offer incredibly low gas fees, and some are moving towards no gas fees at all.

HODL

Stands for “Hold On for Dear Life.” It talks about a passive investment strategy that encourages users to buy and “hold on for dear life” instead of trading it. This is done in hopes that the cryptocurrency will eventually increase in value.

Initial Coin Offering (ICO)

Similar to Initial Public Offerings (IPOs), a new cryptocurrency or project will launch an ICO to raise funds.

Market Capitalization

Refers to the total value of all the coins on a cryptocurrency. You can find a cryptocurrency’s market capitalization by multiplying the current number of coins by the current value of the coins.

Mining

The traditional process of creating new cryptocurrency coins, and also maintaining the log of transactions between users. Mining is essentially the work of several users in verifying new transactions on a blockchain. Mining is done by dedicating computer power to complete a verification request. Completing this rewards the user with crypto.

Mint

Minting on a blockchain means verifying information, and logging it on the blockchain. Minting for an NFT means buying it from its creator during a public sale.

Mint price refers to the initial price that the creators sell it for. After all NFTs in a collection are minted, owners can trade their NFTs on secondary markets.

Multichain

Refers to DApps or services that can be used on multiple blockchains. This is different from cross-chain, which are used to send data or assets from one blockchain to another.

Node

Refers to a computer that connects to a blockchain network. Nodes are one of the important keys to keeping the system decentralized, as each one stores, spreads, and preserves blockchain data.

Non-fungible Tokens (NFTs)

Non-fungible Tokens (NFTs)

Non-fungible tokens (NFTs) are, simply put, digital deeds that certify you as an owner of a digital asset. Right now, NFTs are most known as unique digital items such as art or collectibles. But, NFTs can certify ownership of anything digital — even equipment, characters, and tools for things like crypto games.

Play-to-Earn (P2E)

These are games integrated into a blockchain. Players can earn and spend in-game cryptocurrency using this platform. Most players will use a P2E game to earn crypto, and then cash it in for monetary gain.

Public Key and Private Key

Also known as your wallet’s address, and quite similar to your bank account number. Your public key is what you share with other users so that they know where to send cryptocurrency or take them for trades when you authorize it.

Your private key is an encrypted code that allows direct access to your wallet — much like your bank account password. Never share your private key with other users.

Public Ledger

Every blockchain has a ledger. This is a place online where you can view every transaction made, ever. Most blockchains will have a public ledger, but other systems will use a private ledger to offer more anonymity to their users.

Seed

This is how you access your wallet if something goes wrong. A seed is a series of twelve to sixteen random words that are generated when you create your wallet. You can use this as a failsafe if you lose your private key or some other issue. Don’t share your seed with any other user.

Smart Contract

A core feature of many blockchains like Avalanche (AVA) and Ethereum (ETH), they’re much like your typical legal contract — except online and written in code.

Smart contracts can be used in any transaction and can hold multiple parties accountable for something. Any party involved in a smart contract can see and approve of the terms (a.k.a. its programming) before accepting it.

Once accepted, an algorithmic program enacts the terms of a contract automatically. This is most commonly used to authorize buying and selling of crypto or NFTs but can be used for other purposes.

Stablecoin or Digital Fiat

A type of coin that bases its value on something non-digital — such as non-digital currency or commodity. For example, a stablecoin is Tether, which is linked to the U.S. dollar. It is government-backed, and its value is based on the collective’s faith in the country’s government.

Staking

Certain cryptocurrencies or projects will allow users to “stake” a sum of their tokens. In return, users will exchange a percentage of that sum at regular intervals, for as long as it is staked. This is a passive income strategy, but not all cryptocurrencies will offer this opportunity.

Token

A unit of value on a blockchain comes in many different forms. It typically is tied to a different value proposition other than a transfer of value (like a coin).

Tokens can run on another coin’s blockchain. For example, Ether, Ethereum’s native coin, runs on the Ethereum blockchain. But, tokens like MANA also use this blockchain.

Certain tokens can offer “perks” — governance tokens, for example, give its holder voting rights in DAOs. Utility tokens give its holder access to a service, according to how many of it they hold.

Wallet

Wallet

How you store your cryptocurrency. There are two types:

Cold Wallet

Similar to real-life wallets, a cold wallet can store your cryptocurrency completely offline. These are physical devices that work similarly to a USB drive. This type of wallet is used to reduce the risk of hacking and theft, but comes with risks — you could misplace it much like a regular wallet. Losing it means you lose your crypto.

Hot Wallet

A software-based wallet used online. More convenient and accessible than a cold wallet, but more susceptible to hacking and other cybersecurity threats.

White Paper

A white paper is a free-to-read document that developers release for their cryptocurrency projects. They outline what that cryptocurrency is created to do, and how it will achieve it. This is important for DYOR.

Key Takeaway

Most blockchain technology and use are complicated — and so many of the commonplace terms used in this space can be overwhelming for beginners.

While this is not a complete list of all the phrases and words you’ll encounter in the crypto world, this post is a pretty comprehensive guide to the basic but important cryptocurrency terms to know before you invest.